Return of Employer Contributions

[chris]

Tax-exempt non-governmental employer has a 403(B) Tax-deferred Annuity Plan and a 403(B) Defined Contribution (Money Purchase)Plan with TIAA-CREF funding vehicles. Employer contributes 4% of regular salary to the Def. Cont. Plan annually. Employer sends the contributions to TIAA-CREF. Vesting under the Def. Cont. Plan is two year cliff. If employees do not meet the two year requirement, TIAA-CREF returns the portion of the contributions made on that employee's behalf to the employer. According to TIAA-CREF, the employer can use the returned contribution amounts to reduce future contributions or it can use them for whatever purpose it wants and the employer does not have to maintain any type of separate suspense account or otherwise segregate the funds. Per TIAA-CREF, that is the standard practice. The Def. Cont. Plan contains a provision regarding "no reversion of contributions to the employer..." I deal exclusively with 401(a) plans and am not extremely well-versed in the 403 area, however, it appears to me that there clearly is a reversion of plan assets here. Do 403(B) plans really work that way or am I just hung up on 401(a)(2)?? Any comments or suggestions that may help?????

After originally posting above paragraph I took a look at 403(a), 404(a)(2) and 4980. Looks like, per 403(a) via 404(a)(2), even a 403(a) plan is not subject to 401(a)(2). With respect to 4980 (tax on reversion of qualified plan assets to employer), 4980 applies to 401(a) plans and 403(a) plans but in no event to a plan maintained by a tax exempt employer. I'm still concerned that the plan document speaks to no reversion but, in fact, there is a reversion. Also, wondering if 403©(1) of ERISA applies. There's no trust arrangement with a 403(B) plan, however, a 403(B) plan is subject to ERISA. Any comments or suggestions???

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[This message has been edited by chris (edited 07-14-99).]

[Guest Brent Rowell]

I believe you are hung up on 401 and that you received the correct answer from TIAA-CREF. Be careful I think the funds contributed do not count as 403(B) contributions until they vest. This could easily violate exclusion allowance in year of vesting.

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Brent

[Carol V. Calhoun]

One issue to consider: is this a 403(B)(9) church retirement income account? Legislative history suggests that such accounts are subject to an exclusive benefit rule similar to section 401(a)(2).

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