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wayne07

457 Withdrawal Charges

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I have an option to change my 457 deferral from Great West to MetLife. Met life has a withdrawal charge for their program which is based on years from the inception date. It's a 12 year withdrawal schedule. For instance, 9% charge for first year withdrawals and then going down for each year thereafter ending with 0% after the 12 year. With a goverment 457(b) I thought there were no additional charges for withdrawals upon retirement from employment. Can MetLife hit you with this 12 year withdrawal charge even though you have met all other requirements for retirement.

 

Thanks

Wayne

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I believe I have found the answer....The product has various class options, depending on which class you opt for there is a different fee. For instance we were placed in class b which charges 1.15% , but with this the 12 year withdrawal charge applies. We can swithch to a class c option with a charge of 1.45% but then there is no withdrawal schedule/charges.

 

Thanks

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Yes, a company can charge you all sorts of fees. The IRS qualifications only spare you from the IRS's early withdrawal penalty. It does not make any restrictions on how much an individual company can charge you, if they can get you to agree to those expenses (the contract you signed would have the surrender schedule displayed.)

 

 

 

What state do you work in? Do you have access to a lower-cost 403b plan instead of the 457?

 

 

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You should also look for "benefits sensitivity." Particularly in group annuity contracts, there are often rules allowing CDSC-free payouts when benefits are payable under the terms of the plan. In essence, since the insurer is retaining most of the funds and continuing to get new funds, they don't mind individuals getting payouts. To find these sorts of rules, you have to carefully read the contract.

 

Where there is a group annuity, however, the employer's ability to terminate the contract is always limited by penalties or deferred payout provisions. The result of this is that the participant's account can take a hit even when the participant has done nothing.

 

In a qualified plan or 403(b), the employer can only eat such costs if there is some real legal exposure for the employer. In the 457(b) context, it is simple for the employer to eat these sorts of charges, whether the annuity is group or individual. The reason for this difference is that in a qualified plan or 403(b) the benefit is determined from the assets, while in a 457 the assets are determined from the benefits. So a benefit formula that says something like "the Participant's accrual will be determined without regard to non-annual fees such as setup fees, front-end loads, termination fees, contingent deferred sales charges and market value adjustments" creates a benefit that is unaffected by the listed items and forces the employer to pay those items.

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