CalSTRS 403(b) and 457 Plan Death Benefits: What Survivors Need to Know

These Are Not CalSTRS Benefits

CalSTRS administers the Defined Benefit pension, the Defined Benefit Supplement (DBS), and the Cash Balance program. It also offers Pension2, a voluntary 403(b)/457(b) defined contribution plan.

But many California educators also participate in 403(b) or 457(b) plans offered through third-party vendors — companies like VALIC, Lincoln Financial, Voya, or Security Benefit — selected by their school district. These accounts are completely separate from CalSTRS. CalSTRS has no access to them, no authority over them, and no role in paying death benefits from them.

When an educator dies, survivors must contact each vendor individually. CalSTRS will not handle this.

403(b) Death Benefits

A 403(b) is a tax-sheltered annuity account funded through payroll deductions. The beneficiary designation on the 403(b) account — not the CalSTRS Recipient Designation form — controls who receives the balance.

The named beneficiary can typically choose between a lump-sum distribution, a rollover to an IRA, or an annuity payout, depending on the plan's terms. Spousal beneficiaries have more flexibility — they can roll the balance into their own retirement account. A non-spouse beneficiary who elects a direct rollover must use an eligible inherited IRA; other payout options depend on the plan's terms.

Taxable portions of distributions are generally taxed as ordinary income. A direct rollover to an eligible retirement plan can defer tax; ask the vendor how withholding applies to the beneficiary's payout.

457(b) Death Benefits

A 457(b) deferred compensation plan works similarly. The beneficiary named on the 457(b) account receives the balance, with the same lump-sum, rollover, or annuity options.

One key difference: 457(b) distributions are not subject to the 10% early withdrawal penalty that applies to most other retirement accounts. This means a beneficiary under age 59½ can take a lump-sum distribution without the penalty — though ordinary income tax still applies.

Pension2 (CalSTRS Voluntary Plan)

Pension2 is CalSTRS's own 403(b)/457(b) defined contribution plan. Unlike third-party vendor accounts, Pension2 is administered by CalSTRS. The beneficiary designated on the Pension2 enrollment form receives the account balance.

DBS balances can be rolled over into Pension2 as part of a survivor's election — this defers taxes while keeping the funds within the CalSTRS umbrella.

How These Compare to Life Insurance

CalSTRS survivor benefits and supplemental account death benefits are not life insurance. Key differences:

Life insurance pays a tax-free death benefit based on the policy face value under the insurer's claim process and has no connection to the deceased's pension or employment status.

CalSTRS pension survivor benefits are taxable income, calculated from the member's service record, and paid as a monthly stream (or lump sum for the one-time death payment). Processing benchmarks are up to 60 calendar days for monthly option continuances and up to 120 calendar days for one-time death benefits after all required documents are received.

403(b)/457 balances are the accumulated account value — what was contributed plus investment gains. The taxable amount depends on the account's tax treatment and distribution; pre-tax amounts are generally taxed as ordinary income, while Roth distributions follow Roth plan rules.

For many families, all three sources contribute to the overall financial picture after an educator dies. The pension and supplemental accounts require separate claims with separate entities. The CalSTRS Survivor Benefits Guide covers the CalSTRS pension and DBS claims in detail; for 403(b) and 457 vendor accounts, contact the vendor directly with the member's account number and a certified death certificate.

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