ERSA and the 457(b) The Bush proposal to replace most employee-sponsored retirement plans with an ERSA would have a significant impact on the governmental 457(b).     On January 31, 2003 the Bush administration proposed replacing the 401(k), SIMPLE 401(k), governmental 457 and 403(b) plan with a new Employee Retirement Savings Plan (ERSA). "No longer will individuals have to worry about the confusing alphabet soup of six different savings accounts," declared Treasury Assistant Secretary for Tax Policy Pam Olson in announcing the new proposal. "No longer will people have to worry about the endless maze of confusing rules."   On the whole, it is the belief of the operators of this site (and 403(b)wise) that this proposal would help teachers who currently are only able to contribute to a 403(b) plan. See: ERSA and the 403(b). The picture is different for teachers (and other workers) who have access to a governmental 457(b) plan. Below are some of the ways ERSA would affect the governmental 457(b) plan.   How ERSA would affect the governmental 457(b):     End dual contributions to 457(b) and 403(b). For year 2003 employees who have access to both plans can contriubte $12,000 to each plan for a total contribution of $24,000. Those who are eligible for catch-up contributions can contribute even more.   End to penalty-free withdrawals at termination of job or retirement. Currently, the 457(b) plan is not subject to the age 59 1/2 withdrawal rule. This means there is no 10% penalty for early withdrawal at retirement or upon termination of employment.   End to special "catch-up" provision called the "final three year" provision which allows participants to contribute 200% of the elective deferral amount for the three years prior to normal retirement age (as defined by the employer's plan document). For 2003, eligible employees can contribute $24,000 to their 457(b) plan. This is in addition to the ability to contribute to a 403(b).     Employees who contribute to a governmental 457(b) plan currently have some fantastic special provisions available only to them. ERSA would end this. In its place would be one plan with one set of rules for all. The reality is that very few folks take advantage of the special provisions in a 457(b). Objectively, you have to ask yourself: is it fair for one plan — the 457(b) — to have so many special provisions? Would all employees be better served if they all contributed to one plan with one set of rules? Would this lead to better understanding of retirement plans, and thus increased participation by all employees? Interesting questions to consider.   Home | Disclaimer | © 2003 bWise Guys, LLC. All rights reserved.				More ERSA Information ERSA FAQs RSA/LSA FAQs ERSA and the 403(b) Treasury Department Press Release Department of the Treasury 2003 Budget Blue Book Got an ERSA/RSA/LSA question? Got an ERSA/RSA/LSA answer? Join Discussion