457 or 403(b)?

[Psychstache]

Hey Guys,

I am still sifting through all of the investment options available through my employer and right now I am trying to figure out if it is worth considering my 457 plan over the 403(b).

With 403(b), I was given the choice of a list of vendors. I went with Vanguard and am free to invest in whatever I like. All of the administration fees for the 403b are paid by the employer (the fees to keep the plan open, not the expense ratios of the funds themselves). Right now I am just in VTSAX with its nice low expense ratios and some bonds for good measure.

With the 457 plan, it is managed by an investment company I don't know much about. After looking over their information for our plan, it would seem that once enrolled, I would need to pick one of their pre-packaged deals. Here is what the 'Aggressive Growth' package looks like

15% DALFX
15% DFLVX
15% DFSCX
13% DFEVX
12% DISVX
10% DFUSX
10% DFSTX
10% DFSVX

They report the weighted average expense ratio as 0.43%.

Other misc fees i have found include $30 distribution fee, $25 annual maintenance fee, 0.40% sliding scale fee to investment providers, and $18.50 plus 0.25% of assets managed to the district middle man. all paid by YT.

I don't have any major complaints about the investments, but the additional fees and loss of flexibility from having the plan out of my control don't seem to be worth the benefits of the 457. Am I crazy to pass on this? Anything I am overlooking?

Thanks in advance!

[Another Reader]

457 plans are great, but not if your returns are eaten away by fees and you have bad investment choices.  It sounds like you are a new employee, which makes it very difficult to suggest to the benefits department that they find a new 457 plan provider.  But that's what needs to happen.  Perhaps when you have been there awhile, the subject can be discussed, delicately.

I can't help you with the mutual fund company, DFA, Dimensional Fund Advisors.  They have been around for awhile.  Here's the wikipedia article.

http://en.wikipedia.org/wiki/Dimensional_Fund_Advisors

The ability to take distributions after separation and before age 59 1/2 makes these plans very useful for early retirees.  I guess I would do a little more research on the funds and the portfolios before I said no to the 457.   

[destron]

457 plans have the advantage that you can withdraw the money earlier, just to consider. You might consider contributing to both. Also, you can DOUBLE your pre-tax contributions (if your income is high enough and it is worth it to you based on your tax situation).

[Rich M]

I know this is an old topic, but I was looking at 457s today and in many cases you can do both and increase your annual contributions.  A 457 might not give you the control you want, but then it might also give you better returns if you have the extra cash than many post tax investments...plus, no penalty for taking it out early if you leave your employer.

Hey Guys,

I am still sifting through all of the investment options available through my employer and right now I am trying to figure out if it is worth considering my 457 plan over the 403(b).

With 403(b), I was given the choice of a list of vendors. I went with Vanguard and am free to invest in whatever I like. All of the administration fees for the 403b are paid by the employer (the fees to keep the plan open, not the expense ratios of the funds themselves). Right now I am just in VTSAX with its nice low expense ratios and some bonds for good measure.

With the 457 plan, it is managed by an investment company I don't know much about. After looking over their information for our plan, it would seem that once enrolled, I would need to pick one of their pre-packaged deals. Here is what the 'Aggressive Growth' package looks like

15% DALFX
15% DFLVX
15% DFSCX
13% DFEVX
12% DISVX
10% DFUSX
10% DFSTX
10% DFSVX

They report the weighted average expense ratio as 0.43%.

Other misc fees i have found include $30 distribution fee, $25 annual maintenance fee, 0.40% sliding scale fee to investment providers, and $18.50 plus 0.25% of assets managed to the district middle man. all paid by YT.

I don't have any major complaints about the investments, but the additional fees and loss of flexibility from having the plan out of my control don't seem to be worth the benefits of the 457. Am I crazy to pass on this? Anything I am overlooking?

Thanks in advance!

[Hamster]

An old topic, but with these options, you are working for gov't or a not-for-profit. The big caution with the 403(b) if your employer is not the government, is that the 457 contributions are deferred compensation that belongs to your employer until you terminate employment. If they go bankrupt, you have to get in line with all the other creditors to ask for 'your' money. This is not the case with a 403(b) where the money is yours no matter what happens to your employer.
Check carefully with your HR department on this point, and make sure the tax deferral benefit is worth any potential risk of default.

[Honest Abe]

My two cents here...

I chose my 457 over the 403b even with the issue of ownership. The way I see it is if my employer is about to go bankrupt there's a good chance I (and/or many other people) would have already been laid off, thereby giving me the opportunity to take the money out before things get litigious. (This is a highly unlikely scenario to begin with.)

An old topic, but with these options, you are working for gov't or a not-for-profit. The big caution with the 403(b) if your employer is not the government, is that the 457 contributions are deferred compensation that belongs to your employer until you terminate employment. If they go bankrupt, you have to get in line with all the other creditors to ask for 'your' money. This is not the case with a 403(b) where the money is yours no matter what happens to your employer.
Check carefully with your HR department on this point, and make sure the tax deferral benefit is worth any potential risk of default.