The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Minnesota is representative of a common inquiry related to employees of state and local governmental entities. The advisor asked:
“I have a client, a local police officer, who is concerned about retirement savings. Any pointers you can give me regarding retirement plans and this segment of the workforce?”
Highlights of Discussion
• In many cases, the type of retirement plan available to state and local governmental public safety employees, including law enforcement officers (e.g., police, corrections, probation, parole and judicial officers), firefighters, members of a rescue squad or ambulance crew, or chaplains to a fire or police department, is a 457(b) plan.
• A 457(b) plan is a type of defined contribution plan with many standard features of a salary deferral-type plan — but with some unique features (bolded in the text below) of which your client may not be aware. Check out the following.
-- The combination of employer and employee contributions to the plan annually is limited to the Internal Revenue Code Section 402(g) limit, which is $17,500 in 2013.
-- 457(b) plans may include designated Roth accounts.
-- In addition to an age-50 catch-up contribution provision ($5,500 for 2013 for those age 50 and over), 457(b) plans have an alternative special catch-up contribution limit. In the three years prior to the year of normal retirement age, the contribution limit is increased to the lesser of: (1) $35,000 (twice the basic annual limit in 2013); or (2) the basic annual limit plus underutilized basic annual limits in prior years. Please note this alternative is only allowed if the participant is not utilizing the age 50 or over catch-up contribution provision.
-- Salary deferrals made to other plans [e.g., 401(k), 403(b), savings incentive match plan for employees (SIMPLE) IRA plans] are not aggregated with 457(b) deferrals to determine annual contribution limits.
-- Regardless of the individual’s age, 457(b) participants are not subject to the 10% early withdrawal penalty on 457(b) plan contributions and earnings. However, the penalty may apply to non-457(b) plan assets that were rolled into the 457(b) plan and subsequently withdrawn prior to age 59½.
-- In-service distribution opportunities from a 457(b) include for: (1) unforeseeable emergencies; (2) perhaps pursuant to a qualified domestic relations order in the case of divorce; and (3) active-duty, uniformed services member withdrawals.
-- Retired public safety employees may exclude up to $3,000 of their plan benefits from income tax per year if the benefits are used to pay for the qualified health insurance premiums of the retiree, or the retiree's spouse or dependents for that year.
-- 457(b) plans are eligible for rollover to IRAs and qualified retirement plans.
Conclusion
Police officers, firefighters and other public safety personnel who have 457(b) retirement plans available to them, may be surprised at the additional perks these types of plans have over a standard 401(k) plan. Financial advisors who are aware of these unique features are better positioned to help these important public servants maximize their retirement savings. 
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2013 Columbia Management Investment Advisers, LLC. Used with permission.
