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What are the differences between 403(b) and 457(b) plans?
Although they are both funded with pre-tax contributions, the plans differ in many ways:
403(b) plans are "Qualified Retirement Plans" under the Internal Revenue Code. Once a participant contributes money to a 403(b) plan, he/she can access the funds but may incur an earley distribution penalty unless they are at least 59½ or age 55 and separated from service.
457(b) plans are considered to be "Eligible Plans" which allow a participant access to their funds at any age upon separation of service without an early withdrawal penalty.
What is the Difference between 403(b) and 457(b) Plans?
403(b) Tax Sheltered Annuities (TSA's):
A tax-sheltered plan permits you to defer taxes voluntarily through salary reduction contributions. Though commonly referred to as Tax Sheltered Annuities (TSA's), investment options for public education employees include fixed and variable annuities, custodial mutual fund accounts as well as the Roth 403(b), which is an after-tax retirement savings plan. A participant may not make direct contributions to individual stocks or bonds.
The complete list of 403(b) vendors is available on the CalSTRS website Calstrs403bcomply.
457(b) Deferred Compensation:
A 457(b) is also a tax-sheltered plan that permits a participant to defer taxes voluntarily through salary reduction contributions. This option is commonly referred to as simply a "457" plan. The available investment options in this plan differ from those offered under a 403(b).
Approved vendors for 457 plans are:
- VALIC Financial Advisors - (800) 633-8960 or www.valic.com
- The TDS (Tax Deferred Services) Group - (866) 446-1072 or www.tdsgroup.org
- Plan Member Securities - (559) 738-9840 or www.planmember.com
- Voya - (800) 584-6001 or www.voyaretirementplans.com
The annual limit for elective deferrals to 403(b) and 457 plans for 2023 is at $22,500 ($10,500 for 2022). The amount may be higher depending on your age and years of service. Employees should consult with their financial advisor to determine if they are eligible to contribute more than the limit for 2023.
Important Announcement To All Employees Participating in the Public Agency Retirement System (PARS)!
Information about your particular PARS Participation account is now available in the Annual Participant Account Valuation Report and can be obtained by contacting Kyla Johnson firstname.lastname@example.org or at (559)-730-7534.
CalPERS offers a defined benefit plan where retirement benefits are based on a formula, rather than contributions and earnings to a savings plan. Retirement benefits are calculated based on a member's years of service credit, age at retirement, and final compensation (average salary for a defined period of employment).
CALPERS COMPENSATION LIMITS
CALPERS CONTRIBUTION RATES
2% @ 55 (Classic)
2% @ 62 (Pepra)
*Retirees cannot exceed 960 hours in a fiscal year (July 1 through June 30) for employment.
There are no exceptions to this limit.
CalSTRS provides retirement, disability and survivor benefits for full-time and part-time California public school educators through a hybrid retirement system consisting of its Defined Benefit, Defined Benefit Supplement and Cash Balance Benefit programs, and a voluntary defined contribution plan called CalSTRS Pension2.
CALSTRS COMPENSATION LIMITS
CALSTRS CONTRIBUTION RATES
2% @ 60 (Classic)
2% @ 62 (Pepra)
*Retirees – Maximum Earnings for Fiscal Year 2022-2023 are $49,746
(up from $48,428 from FY2021-2022)