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Enrolling in a 403b Plan

Enrolling in a 403b Plan

Posted: Nov 19, 2015 | Author: | Comments: 0

What is a 403(b) Plan?

CalSTRS and CalPERS members will enjoy the benefits of their pension upon retirement. This type of retirement plan provides a set amount of income each month for the retired employee. With a defined benefit plan, the employer and employee contribute a specified amount to the plan. Currently, employers contribute 8.25 percent to CalSTRS and the employee contributes 8 percent of his or her creditable compensation. This type of plan makes the investment decisions and assumes the investment risks on behalf of the employee. When it comes time to retire, the retirement benefit the employee receives is based on a formula that takes into account age, years of service and final compensation. As long as the employee is “vested,” or eligible for retirement benefits, he or she will receive a pension.

However, studies show that the median pension benefit only replaces 60 to 65 percent of the employee’s pre-retirement income. This means that most employees will not have enough income to maintain a comfortable retirement. For those who are concerned that their pension will not be enough to live on in retirement, there is good news. 403(b) retirement plans are available to those who want to supplement their main retirement plan. This type of plan is a voluntary defined contribution retirement plan for employees of public schools, employees of eligible tax-exempt organizations and some ministers. Employees who participate in a 403(b) plan are able to supplement their CalSTRS or CalPERS defined benefit plan, giving them the funds to enjoy a comfortable retirement.

How to Enroll in a 403(b) Plan

If you are interested in supplementing your retirement pension with a 403(b) plan:

  • Go to 403bcompare.com and select a vendor. You can also contact ed4ed for assistance.
  • Research potential fees, expenses, and investment performance.
  • Open an account of your choice.
  • Complete and submit the Salary Amendment Agreement (SAA) to your payroll office.

Once you have completed these steps, you can begin contributing to your plan.

Investments of 403(b) Assets (2009)

  • 48% Fixed Annuities
  • 32% Variable Annuities
  • 20% Mutual Funds

Source: plansponsor.com

Investing 403b Assets

A 403(b) plan gives the employee the opportunity to supplement his or her defined benefit plan with savings. With a 403(b), the participant makes contributions to the plan with pre-tax income from his or her paycheck. When the money is later withdrawn, it will be treated like income and taxed. The employee will choose the investments from among the options offered by the plan, thus assuming the investment risk. A 403(b) can allow you to choose from a custodial account invested directly in mutual funds or an individual account with an annuity contract provided through an insurance company. Within the annuity category, there is often a choice of equity-indexed annuities, fixed annuities and variable annuities.

It is important to remember that the amount you accumulate for retirement in your 403(b) plan will depend on the amount you actually contribute, how long you participate in the plan and the performance of the investment choices you make. Also remember that if you decide to leave a job before retirement, you can roll over the balance to another employer-sponsored retirement plan or place the funds into an individual retirement account (IRA).

In many cases with retirement pension plans and supplemental income plans, participants do not fully understand the options that are available to them. It is important to realize that you have the power to change that. Start by learning more about investing and the investment options that are available in your plan. Ed4Ed.org has gathered and provided information through our website to give participants the tools and information they need to make the right decisions that their financial future in retirement.