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As school districts across Ohio continue to strengthen employee benefits to recruit and retain top talent, retirement plan design plays a critical role. While 403(b) plans are already widely available to school employees, adding a 457(b) plan can provide  advantages that enhance financial security for staff and flexibility for districts.

Comparing 403(b) vs. 457(b) for School Districts

403(b) plans are the most common retirement savings option offered by public K–12 school districts, while 457(b) plans are also available but less universally adopted. Districts that provide both give employees added flexibility in how they save.

Who Can Offer Them

• 403(b): Available to public school districts (as qualifying educational institutions), along with colleges, universities, churches, and 501(c)(3) nonprofits.
• 457(b): Available to state and local government entities—including public school districts—and certain nonprofits.

This means your district can sponsor both plans side by side, giving employees more flexibility.

Eligibility (403(b) & 457)

• Employees are typically eligible to make contributions right away.
• Employer contributions are at the discretion of each employer.

Contributions

• Annual Salary Deferral: Both allow up to $23,500 in 2025.
• Catch-Up Contributions:
• Age 50+: Both allow an additional $7,500.
• Pre-Retirement Catch-Up: 457(b) plans allow a special “final three years” catch-up option, which can double contribution limits—a powerful tool for employees nearing retirement.

Withdrawals

• 403(b): Withdrawals before age 59½ usually trigger a 10% IRS penalty, on top of income tax.
• 457(b): Withdrawals are not subject to the 10% penalty (unless funds were rolled over from another plan), making the 457(b) especially valuable for employees who retire early or change jobs mid-career.

Loans & Vesting

• Employee contributions to both 403(b) and 457(b) plans are always immediately vested.
• Employer contributions (if offered) may be subject to a vesting schedule depending upon the plan design. 

Administrative Notes

• 403(b): Governmental 403(b) plans (such as those in school districts) do not require Form 5500 filing. Only ERISA-covered 403(b) plans, which school districts are not subject to, requires this.
• 457(b): Governmental 457(b) plans (offered by school districts) are also exempt from Form 5500 filing. Non-governmental 457(b) plans, which do not apply to school districts, do require this.

Key Differences: 403(b) vs. 457(b)

Using the 2025 403(b) & 457 Comparison Chart, here are the main distinctions:

Advantages of a dual plan strategy 

Offering both a 403(b) and a 457(b) gives employees maximum flexibility. Staff can choose the plan that best fits their career stage—or even contribute to both, within IRS limits. Benefits of adding a 457(b) plan include:

1. No Early Withdrawal Penalty
   Unlike 403(b) plans, where withdrawals before age 59 ½ may trigger a 10% IRS penalty, 457(b) plans allow distributions without penalty once an employee separates from service—regardless of age. This makes the 457(b) particularly valuable for employees who may retire early or transition careers before traditional retirement age.
2. Catch-Up Contributions for Long-Term Employees
   In addition to the standard IRS catch-up provision for those aged 50+, governmental 457(b) plans offer a special catch-up option for employees within three years of retirement eligibility. This allows participants to contribute up to double the annual limit, significantly accelerating retirement savings in the final years of service.
3. Dual Contribution Opportunities
   A 457(b) plan allows employees to contribute on top of their 403(b) contributions, effectively doubling their elective deferral opportunities. In 2025, this means employees can contribute $23,500 to a 403(b) and $23,500 to a 457(b)—for a combined total of $47,000 annually, excluding catch-up provisions.
4. Flexibility at Separation
   Because there is no penalty for early distributions, a 457(b) plan offers school employees added flexibility if they retire before 59 ½, pursue another career, or need income while transitioning between roles.

Communicating with Employees

When weighing or communicating these options, districts can focus on three key points:

1. Both Plans Work Together
   Offering both a 403(b) and a 457(b) gives employees maximum flexibility. Staff can choose the plan that best fits their career stage—or even contribute to both, within IRS limits.
2. 457(b) Provides Flexibility for Early Retirees
   For employees who may leave the workforce before 59½, the lack of an early withdrawal penalty makes the 457(b) particularly attractive. This can be a key selling point in employee communications.
3. Administration Matters
   While both plans require oversight, governmental 457(b) plans, including public school districts, often come with simpler reporting requirements. For busy district leaders, that can translate into less administrative lift.

Conclusion

Adopting a 457(b) alongside a 403(b) enhances Ohio school districts' workforce stability and retirement readiness. This combination offers employees greater control, penalty-free withdrawals, and catch-up options. It is a cost-effective way to boost benefits, support staff, and remain competitive in tight budgets. You can learn more on the OASBO webinar Retirement Readiness, Two Ways: 403(b) vs. 457(b) on September 17 at noon. 

Fred Makonnen is Head of Group Retirement Sales & Distribution at Equitable, where he oversees its 401(k), 403(b) and 457(b) businesses. This educational article does not offer or constitute – and should not be relied upon as -- financial, investment, tax, or legal advice. Please consult your own financial, legal, and tax professionals accordingly. 

Equitable is the brand name of Equitable Holdings, Inc. and its family of companies, including Equitable Financial Life Insurance Company (NY, NY) and Equitable Financial Life Insurance Company of America, an Arizona stock company with an administrative office located in Charlotte, NC, issuers of life insurance and annuities, and Equitable Distributors, LLC. 

GE-8311323.1 (8/25)(Exp. 8/29)