Some employees covered by CalPERS can participate in the CalPERS 457 deferred compensation plan. Eligibility depends on whether your employer has contracted for this benefit. The easiest way to find out if your 457 account is through CalPERS is to ask your HR department.
Keep in mind that even if your job has a 457 plan, it may be managed by the employer rather than by CalPERS. Because of this, you have to ask your job whether or not is is a CalPERS 457 or not.
Investment Options in CalPERS 457
The CalPERS 457 deferred compensation has a lot of good investment options, especially the index funds which have ultra low expenses that are very hard to beat (0.09% for the S&P 500 index mutual fund as of December 2009). It also features a TIPS mutual fund (Treasury Inflation Protection Security). However, it does not contain more exotic investment choices such as REIT (Real Estate Investment Trust).
If you are an investor who is looking for ultra-low cost index funds, the CalPERS 457 is the right place to be. The expenses on the managed funds can rise above 1% even with the CalPERS 457.
Advantages of CalPERS 457 Deferred Compensation
Unlike a 401k account, a 457 account can be withdrawn at any age as long as the employee is not longer employed by the organizatin sponsoring the 457. For somebody contemplating early retirement, this means the entire 457 account is available without income tax penalty upon separation of employment.
For example, if a 50 year old employee retires with a 457 account, he can withdraw the entire account without a penalty. On the other hand, he cannot withdraw his 401k account without penalty until age 59 1/2, which is nine and a half years later.
Advantage for Highly Compensated Employees
If your employer (or even another job) gives you the option of a 457 along with a 403b or 401k account, you can double dip and invest in both. Each account has its own maximum contribution limit, which is $16,500 in 2009. So for 2009, you could save $33,000 in tax deferred accounts (and even more with catch-up provisions). Please contact a tax professional and/or investment professional for advice on your specific situation before investing.
401k Rollover / 403b Rollover / 457 Rollover / IRA Rollover
It is possible to rollover your old 401k or IRA account to CalPERS to take advantage of their low expense investment funds as long as you’re still employed with your CalPERS employer. You will need to have separated from the employer for your 401k, 403b, or 457 account as well. Contact your HR department for the forms necessary to transfer 401k or IRA account to the CalPERS 457 account.
Enroll in a CalPERS 457
It takes only five minutes to sign up for the CalPERS 457. Just ask your HR department for an enrollment form. Decide on the amount you want to contribute to the 457 account every paycheck and return the signed form to HR. That’s it. It’s that simple.