Class year vesting

[Guest krijowri]

I know qualified plans can no longer use class-year vesting, but does anyone know of any problems with this in a 457(f) plan?

[Guest mjb]

How will class yr vesting apply if benefits must be subject to substantial risk of forfeiture as long as employee performs substantial services for employer?

[Guest krijowri]

I don't understand your question, mjb. It's clear that amounts are subject to a substantial risk of forfeiture if an employee has to have, for example, 5 years of continuous service. In other words, something similar to 5-year cliff vesting will serve as SROF. When 5 years is up, the risk of forfeiture is no longer substantial, so the amounts are taxable. In my class-year question, though, the idea is to say that each year, the 5-year vesting starts over. So for example, $10K is contributed to the 457(f) plan in 2007. Five years will be up in 2012. In 2008, $10K more is contributed and it vests five years later in 2013. And so on. Substantial risk of forfeiture shouldn't be a problem. Any problem with that type of arrangement in a 457(f) plan?

[jpod]

The correct perspective with respect to 457f is that it does NOT establish rules which must be followed in order to secure special tax treatment. To the contrary, 457f contains a special rule that overrides the general Section 451 accounting rules. So, to answer your question, if everyone understands that amounts deferred become taxable to the employee as they vest, regardless of when they are paid, then I guess there is "no problem."

[Guest krijowri]

jpod - that's the conclusion I came to, as well. I was just curious to see if anyone had any other thoughts on the matter of if I am missing anything. Thanks!