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Tom F

Why are 457 underutilized

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I am one of only 2 employees putting money into a 457 in my school corporation.  I am wondering why they are so underutilized.  

Why would we not encourage new teachers to put half of their savings in a 403B and half in a 457?  In the event of a career change, they would have access to the 457.  

It would seem like an additional emergency fund of last resort.  It might also get them to save more knowing that the money is not locked away until they are "old."

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I would bet it has something to do with how investment products are sold to teachers. Insurance sales forces are out there doing presentations in schools and also hanging out in teacher lounges offering free stuff. As  a result more teachers sign up for 403b's and tell their teacher  friends about it. 403b's get more exposure. 403b's are pushed obviously because the commissions are so high plus the salespeople  gets promised trips to Hawaii the more the salesperson sells and other incentives. It's true that teachers get the shaft and the salesperson gets the gold mine. But the shaft is well hidden so the teacher never figures out they are getting fleeced.

On the other hand 457b plans are less known and less common. When I introduced our state 457b plan, NO ONE in our district had ever heard of it and some were suspicious of it even though  it  was a much better  investing options with rock bottom costs and strict supervision by the state . No one knew here in Virginia,  that teachers actually qualified for it. So many good 457b plans are free of variable annuities and salespeople. and offer investors  investment paths that are easy to understand and that can be done without fake advisor interference.

Unfortunately many teachers don't feel comfortable investing on their own so when a helpful salesperson does all the work for the teacher, its an easy sale. And , many assume their help is in the teachers best interest, but usually its the opposite.

I want to qualify my comments by saying not all 457b's are made equal. I've seen some littered with insurance products and were as bad as your average 403b. I would avoid those district specific 457b's  and go only with those supervised by the state if you have it available to teachers in your state.

Sorry about rambling on.

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8 hours ago, Tom F said:

Why would we not encourage new teachers to put half of their savings in a 403B and half in a 457?  In the event of a career change, they would have access to the 457.  

If you have a great 403b and 457b you can utilize both to your advantage. But most teachers won't save enough to max out both plans. So if a good 457b plan is available at low cost, with  index fund or target fund availability I would go the 457b route first and foremost.

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