PGH.ERISA

Vesting of employoer contributions under 403(b)

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Prior to the issuance of the final new 403(b) regulations, there were PLRs that approved the use of vesting schedules for employer contributions under 403(b) plans. However, new regulation 1.403(b)-3(d)(2) provides that all contributions must be fully vested, and that the portion of the plan that fails to meet that requirement will be treated as a 403© annuity. The regulations then provide that when the contract becomes fully or partially nonforfeitable under the vesting schedule, the part that has become vested can generally be treated as part of a 403(b) contract. Therefore, apart from needing to maintain separate accounts for non-vested amounts, it does not really seem like much of a big deal to still have a vesting schedule in a 403(b) plan. Does anyone have any thoughts as to why it would nevertheless be better for 403(b) plans with vesting schedules to go to full vesting next year?

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Under 403(b)(1)© full vesting is required, but don't stop there. Any amount that is not vested is therefore not subject to 403(b) and are thus subject to code section 83. Then, once the funds become vested, they become subject to 403(b) if separate accounting is done, the account complied with all of the 403(b) rules, if the employee hasn't made a code section 83(b) tax election, and if the plan hasn't terminated.

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