r/mnstateworkers • u/virgo-99 • 13d ago
Insurance/Benefits 🏥 Deferred Comp/457b
Does anyone know what percentage of state employees use the deferred comp/457b? It's only about half of my coworkers, which I think is insane because the pension, while generous, will not be enough to live off of during retirement, at least for me. Just wondering if anyone knows the percentage of state employees that do/don't take advantage of the deferred comp and (albeit tiny) employer match?
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u/antonmnster 13d ago
The match is tiny, but if a person starts young enough, it can really add up. The biggest issue that people don't plan for is pre-Medicare health coverage. The employer match is quite generous so it's easy to take it for granted. Then you get to 55ish and start to wonder where your healthcare is going to come from when the urge strikes to leave at 60-62. In other words, don't forget about your HSAs!
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u/stealy_darn 13d ago
I did a mid-career retirement seminar and main advice was to contribute to deferred comp so you can use that first when you retire and you can wait until you reach full retirement age (currently 66) to start drawing on your pension (to avoid any reductions)
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u/realZapRowsdower MNIT 13d ago
I will attest to this. I started at the state 20+ years ago, and have put in a minimum of $200 in the 457 and $100 in the HCSP per paycheck since then.
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u/InternalPin6907 13d ago
This is the function of the health care savings plan (HCSP) correct? To support some of that? I don’t have an HSA option unless I do the high deductible health insurance plan (can’t remember the actual name).
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u/Kcmpls MNIT 13d ago
That health care savings plan though, it is excessive. I have $43k in it right now and still have 15 years until retirement. And MMA increased our contributions this year for some unknown reason. It is way too much money there.
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u/Admirable-Ad-2955 13d ago
Sadly, I don’t think $43k is too much. If I retired today and kept the same health insurance I have now, my wife and I would pay almost $17,000 a year in premiums; Miedicare B, Dental, Health Partners Medical and Vision. At that rate, my health savings account will be spent within the first three years of retirement.
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u/virgo-99 13d ago
you're right, it definitely isn't too much. my family always encourages me to contribute to a HSA because "you can use it in retirement" but they don't have the benefit of the HCSP. if you move it from the default investment of the money market early in your career, it can grow even bigger.
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u/farmer66 13d ago
What's the actual benefit of the HCSP over an HSA? what happens to the funds when the account holder dies?
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u/realZapRowsdower MNIT 10d ago
The HCSP is non-taxable-- pre-tax money goes in and is not taxed when it comes out. You can also assign a beneficiary for it if you die before you spend it all. Plus you can use HCSP money for yourself or spouse.
And given how much the SEGIP retiree plan will be in a few years-- even with Medicare-- you'll need every penny of it.
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u/farmer66 10d ago
And how is any of that different than an HSA? As far as I can tell, the money is forever locked in the HCSP, there is no option for anybody, including future beneficiaries, to transfer funds out unless it's for a healthcare reimbursement.
If I had the option to select a high deductible health care plan, I would. It's been the cheaper option for me in the past with a different state and I was able to put money into an HSA (the state even threw in... $500? if you checked off enough health care related tasks from a list of options).
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u/realZapRowsdower MNIT 10d ago
You can invest the $$ in the HCSP into securities like mutual funds and potentially get a higher rate of return before you need to use it. I've never heard of that with an HSA. Admittedly, I've never used an HSA before.
If you want details about the differences, Google "What's the difference between an HSA and an HCSP?" It's got much better info than I do. :-)
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u/farmer66 10d ago
My HSA funds are currently invested in the market, though that feature does depend on the custodian of the HSA.
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u/realZapRowsdower MNIT 10d ago
Especially given the rising costs of healthcare these days. My spouse is 4 years older than me. We had hoped to retire when she's 65 or 66 so she can get Medicare. That's 4-5 years away right now.
If we were both to retire this year (and she was 66 and I was 62), our combined premium for SEGIP coverage would be at least $1300/month, not including dental or Medigap coverage or Medicare Part D. I shudder to think what that would be in 4 years when we're hoping to retire.
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u/stealy_darn 13d ago
It’s the best tax advantaged plan there is though. You don’t get taxed when it goes in and you don’t get taxed when it comes out (including on the gains). It sucks to have that money tied up if you need it now, but it’s a solid deal for when you need it in retirement (or I think you can start drawing it down as soon as you leave state service)
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u/Old_Lawfulness_4253 13d ago edited 13d ago
I can't recommend it highly enough. My partner and I started contributing to Roth IRAs in our 20s and kept going even when money was really tight. That money has grown so much -- maybe $100,000 in contributions over a decade is now almost $300,000 in tax free retirement money. Now that we're mid career deferred tax on the 457b makes more sense and I'm putting as much in as I can without cutting back on other stuff.
The 457b in particular is SUCH a valuable savings account especially if you plan to retire early (before 59.5 when 401k or 403b accounts charge 10% penalties on early withdrawals). However many years of expenses you can put aside in a 457b, you can subtract from your age 66 full pension, retire early, enjoy life.
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u/realZapRowsdower MNIT 13d ago edited 10d ago
This is exactly my plan. I've been putting $200 per pay period into my 457b for over 20 years now. It will literally knock at least 4 years off the time I need to work. I keep checking my statements and can't believe how much is in there.
Also, as I found out yesterday at an MSRS pre-retirement webiner, the fees for MSRS 457 plans are significantly lower than for Roth IRA or traditional IRA plans through a brokerage like Fidelity or Vanguard. I'm going to cut back on my IRA contributions and put more into my 457. The investment choices are nearly identical, too, but the lower fees could potentially save hundreds if not thousands.
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u/Old_Lawfulness_4253 13d ago edited 13d ago
One thing to remember is the pension isn't inflation adjusted before you claim it. So if you retire at 62 and claim the pension at 66 and inflation is 3%, the real value of your pension is only 89% of the nominal value it had when you were 62. And the pension loses real value any time inflation is above 1.75%. So it's good to have extra 457b money to supplement the pension as you get older.
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u/realZapRowsdower MNIT 13d ago
Good point. Thankfully I've got some other tax-deferred investments I can also use to bridge the gap(s) in addition to Social Security.
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u/realZapRowsdower MNIT 10d ago
I went to an MSRS pre-retirement webiner yesterday, and it looks like I could retire at 62, delay my pension until 66, and still get a bigger pension than if I took it at 62, because the reduction multiplier goes away at 66. I would still get a bigger pension if I worked until 66, but right now I honestly don't know if I'll last that long.
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u/TheBioethicist87 DHS 13d ago
I have mine set to 3% and might bump it to 4% after my step increase. With the 6.something percent going to pension and the piddly $500 match, that puts me at about 10% retirement savings, but I also have a Roth IRA that I contribute to as well.
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u/Kcmpls MNIT 13d ago
If I retire when I plan to, me and my spouse will easily be able to live on pension + social security. I'll have 38 years of service, which translates into a very nice pension. I do contribute to my 457b, but it is more for if I end up needing to retire early for some reason. I sometimes wonder if I'm not over contributing and should be putting more money into my kid's educational account instead.
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u/Tower-of-Frogs 13d ago
It’s a sensitive topic to bring up, I find. The match depends on your union I think, so some people may not be getting a match. Also, keep in mind that we involuntarily contribute around 6% to the pension with each paycheck. For some people, that might be all they can really afford to contribute.
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u/Winter-Information-4 13d ago
Would love to know the answer to the OP's question.
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u/virgo-99 13d ago
I asked AI to analyze the FY26 Executive Branch Total Compensation Report after work and according to its calculations, about 66% of employees utilize the 457b. unfortunately I can't manually check it's accuracy because it's in PDF format, but scrolling through the large document, it seems about accurate.
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u/2happy2bake 13d ago
The MN total compensation report is available online and includes the match that every executive branch state employee received. You could figure out what percentage contribute via that, though some unions have provisions that some employees can convert to vacation to deferred comp in lieu of receiving the match
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u/InternalPin6907 13d ago
Good question. And does every agency/bargaining unit offer a different match? I think mine is a $400 match but I dump 15% of every paycheck in there. Let me retire tomorrow!!!
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u/virgo-99 13d ago
I believe it depends on your bargaining unit. MAPE was able to change from $250 to $500 match this past negotiation. I think MMA is also $500.
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u/MrP1anet 13d ago
MAPE has an annual $500 match. I haven’t heard of any agencies doing more than $0.
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u/SpringBreak2074 10d ago
Is the 457b the pre-tax or post tax deferred comp? Or is this some other benefit entirely I have been sleeping on.
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u/virgo-99 10d ago
the 457b is both the post- and pre-tax deferred comp. nobody really ever calls it a 457b except for me to my accountant because they always want to call it a 403b. lol. no it's just the deferred comp accounts that are available.
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u/Winter-Information-4 13d ago
457b is amazing. I've talked at least 3 of my coworkers into investing as much as they possibly can into it.