vesting of employer contributions

[Felicia]

Can a non-ERISA 403(b) have a vesting schedule for employer contributions?

[Guest Herbert Hussey]

Yes, I am working with an employer who offers a non-ERISA 403b with a vesting schedule for employer contritbutions.

[MWeddell]

Let's divide your question into two:

(1) May employer contributions be made into a non-ERISA 403(b) arrangement without making it subject to ERISA?

(2) If so, then what are the permitted vesting schedules?

On the first question, I believe it is unlikely that an employer may make contributions to a 403(b) arrangement without making it subject to ERISA. See Labor Reg. 2510.3-2(f)(3). I'm sure you could look for only threads discussing this issue.

[Felicia]

I believe that a governmental agency can make contributions to a 403(b) without subjecting the 403(b) to ERISA. I understand that some school districts are making contributions and that the contributions are usually 100% vested at the time made. Just wanted to get feedback as to whether anyone actually saw a vesting schedule for employer contributions.

Thanks for all the replies.

[Guest Herbert Hussey]

There are vesting schedules for employer contributions. In the one I am familar with, the vesting schedule is described in detail in the Plan Document; then summarized in the Plan Summary which is given to each participant.

The schedule explains that the employee contributions are 100% vested. It gives examples when the company contributions are fully vested, explains what "years of service" means, and what happens if the employees leaves then returns. There is also a schedule of vesting per year. and an explanation of forfeiture of the unvested portion.

The Plan Document, which includes this vesting information, is written by an retirement plan attorney. Hope this helps.

[MWeddell]

Felicia -- You're right that governmental employers will be exempt from most of ERISA. I don't know why, but I wasn't thinking that you were talking about a governmental employer in your initial post.

[mbozek]

Under the proposed 403(b) regs, the non vested porton of a 403(b) annuity is counted for 415 purposes in the year it becomes vested and any excess amount above the 415 limit in that year is taxed as ordinary income. Also under the proposed regs the non vested portion is considered made to a non qualified annuity under 403© which could be subject to Section 409A because it is subject to a substantial risk of forfeiture under IRC 83.

[Guest lakepointe]

I have a governmental 403(b) (Hospital Plan exempt from tax under the Section 501 rules set up in a municipality trust). They have 2 different match formulas and do have a vesting schedule. Because the plan is non-erisa they were subject to the Pre-ERISA vesting schedules. 5 year cliff, etc. They have recently changed to a 5 year (20%per year). The Governmental Reference book states that you can have a more lenient vesting schedule than the Pre-ERISA vesting schedules. Governmental match is not subject to testing.