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Section 457 Deferred Compensation Plan

Section 457 Deferred Compensation Plan Resources

Investment Information:

Enrollment Forms:

The Section 457 Deferred Compensation Plan (457 Plan) is a tax-deferred retirement plan that is funded exclusively by employee contributions.

It allows you to set aside a portion of your salary on a pre-tax basis to supplement your mandatory retirement plan and social security. You will not pay any federal state income taxes on the amounts you contribute or on your earnings until the funds are withdrawn from your account.

You may participate in both the University's 457 Plan and its Optional Retirement Plan in the same calendar year and simultaneously contribute the maximum amount permissible to both plans.

The 457 Plan does not permit loans to be taken from the Plan and restricts withdrawals while employed unless a participant has an unforeseeable emergency. However, unlike the Optional Retirement Plan, distributions from the 457 Plan are not subject to penalty for early withdrawal before age 59 1/2.

Eligibility

All faculty and staff members who are paid on a continuous basis are eligible to participate in the Section 457 Deferred Compensation Plan. You may begin participation at any time during the year.

How do I enroll?

  1. Request an enrollment kit containing information on the Plan and the participating investment companies. You may request the kit online, or you may call Employee Benefits at 612-624-9090 or 800-756-2363 and press Option 2.
  2. For further information on specific funds offered by the participating companies, contact the investment companies directly.
  3. Complete the Section 457 Deferred Compensation Plan Retirement Savings Agreement (pdf). The agreement permits the University to deduct your contribution from your salary and reduce the amount subject to taxation.
  4. Complete the account enrollment form for the investment company or companies you select. These forms are included in the enrollment kit.

  5. Attach the Retirement Savings Agreement to the investment company enrollment form(s) and return them to:
     

    University of Minnesota
    Employee Benefits
    100 Donhowe
    319 15th Avenue SE
    Minneapolis, MN 55455-0103

If you have questions about enrollment, call the Employee Benefits Service Center at 612-624-9090 or 800-756-2363 and select Option 2.

How much may I contribute?

You may contribute the lesser of 100 percent of your reduced salary or $16,500 in 2009 and 2010. This contribution limit is indexed in $500 increments. Your “reduced salary” is defined as the amount after your required contribution to your basic retirement plan. Your participation in another employer's retirement plan during the year may affect your limit.

You may change or stop your contributions at any time by completing a new Retirement Savings Agreement.

When should I start investing?

The key to investing is to start early and gradually adjust your risk level as you approach your goal. By taking advantage of the power of compounding, you can build wealth with even small, regular investments. The chart below compiled from figures provided by Fidelity Investments shows the results of investing $100 per month with an average return of 8% over a number of years. Over a 25-year period, investing this much could add up to over $95,000.

 

May I change investment funds?

You may change investment funds within a particular company. Subject to the investment company's restrictions, you may change your new contributions and move money you have already invested. Some companies permit transfers by phone or through their Web sites. Contact the company directly for specific information on their policies.

 

May I change investment companies?

You may change investment companies at any time by completing a new Retirement Savings Agreement and an account enrollment form for the new investment company.

To transfer existing funds, you must complete a transfer form and an account enrollment form for the new investment company. Transferring money from one investment company to another is subject to the company's restrictions. Contact the individual company for more information.

How do I track my investments?

The University publishes quarterly Investment Performance Results. Additional information is available on your quarterly statements and on the investment companies' Web sites.

 

How do I increase or decrease my contributions?

Please be aware, you may only elect to change your contributions amount for funds that you have not previously earned. If you want to increase or decrease your contribution, you must make this election prior to the end of the month before the compensation was earned. As a result there will be a delay between the time you submit your request to Employee Benefits and when you see the change on your paycheck. A schedule of effective dates (pdf) is available for your reference. Note, this change does not affect contributions to the Optional Retirement Plan.

 

How do I stop my contributions?

You may stop your 457 Plan contribution at any time by completing a Retirement Savings Agreement and returning it to Employee Benefits. Please be aware, you may only defer funds that you have not yet earned. If you want to restart your deduction, you must make this election prior to the end of the month before the compensation is earned. As a result, there will be a delay between the time you complete your election and your first deduction date. A schedule of effective dates (pdf) is available for your reference.

 

Restrictions on withdrawals

Under the Internal Revenue Code, funds in a 457 Plan may be made available to you under one or more of the following circumstances:

  • upon severance from service
  • retirement
  • attaining the age of 70 1/2
  • death
  • when you encounter an "unforeseeable emergency" as defined by IRC Section 457

Any amount you receive will be treated as ordinary income for federal tax purposes.

Unforeseeable emergencies

You may be able to request a hardship withdrawal if you experience an unforeseeable emergency. However, before your request can be approved, you must show that the financial emergency meets the legally mandated criteria for an unforeseeable emergency and that you have exhausted all other financial resources.

The IRS defines an unforeseeable emergency as the sudden or unexpected illness of you or a dependent, the loss of property due to casualty, or any other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant.

Conversely, events such as divorce or credit card debt do not in and of themselves qualify as unforeseeable emergencies and therefore would not permit you to withdraw will be subject to taxation.

Payment options

You may begin payments anytime following severance from service or you may wait until retirement to begin receiving payments. However, distributions must begin by April 1 of the calendar year following the year in which you turn 70 1/2.

You will be able to access your 457 Plan accumulations in a variety of ways, from cash to lifetime income. You can choose from the following payment options:

  • Lump-sum withdrawal
  • Fixed-period annuity
  • Lifetime annuity income
  • Systematic withdrawals
  • Minimum distribution option

Money withdrawn is subject to federal and state income tax.

What taxes must be paid when I withdraw my savings?

Money withdrawn is subject to federal and state income tax. Except for "rollovers," annuities, and regular installments over 10 years or more, all other payments will have 20% withheld automatically for federal taxes.

Please note that this material is intended for informational purposes only, and no warranty is given regarding the information. None of the information is intended to constitute, nor does it constitute, financial advice. This information is not a substitute for professional financial advice, and each person should always consult his or her own financial or other professional advisors and discuss the facts and circumstances that apply to the person. So far as it is permitted by law, the University of Minnesota disclaims liability for any loss, however caused, arising directly or indirectly from the use and content of this Web site.

Employee Benefits