Non-ERISA 403(b) -- Reversion of Non-Vested Balances

[Guest rocnrols2]

A schoold district adopts a 403(B) arrangement for its superintendent as the only employee. The 403(B) has a vesting schedule and provides that upon forfeture, any nonvested balance reverts to the school district. Does anyone have problems with this approach under the tax law?

[mbozek]

Since immediate vesting was required only under the exclusion allowance which was repealed after 12/31/01, there is no prohibition in having deferrred vesting requirement in either an ERISA or non ERISA plan. Deferred vesting is permitted under IRC 415©.

[Ellie Lowder]

While your question infers it, you didn't actually say that these are non-elective contributions, e.g., employer contributions, not elective deferrals. Of course, you cannot use a vesting schedule for elective deferrals. Just being precise!

[Everett Moreland]

If the contributions will be made to an individual annuity contract, you should read the contract to determine whether it provides for vesting and has a mechanism to forfeit and to return forfeited amounts to the employer. I have not looked at whether it is permissible for 403(B) forfeitures to revert to the employer.