(b)lines Ask the Experts – Vesting Rules for Governmental and Church Plans

Experts from Groom Law Group and Cammack Retirement Group answer questions concerning 403(b) plans and regulations.
By PS

“I read in a past Ask the Experts column that special pre-ERISA vesting rules apply to governmental and church retirement plans, but the Experts did not state what those rules are. Can the Experts elaborate?”

 

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

 

Absolutely! Keep in mind that these are extremely old provisions, as ERISA was enacted in 1974, and these were pre-ERISA rules. As such, they are not crystal clear. That said, unlike current vesting provisions, there is generally no requirement that contributions be vested after completion of a certain number of years of service. Instead, vesting is merely required upon plan termination, discontinuance of contributions to the plan, or attainment of the plan’s normal retirement age. In addition, the vesting provisions must not discriminate in favor of employees who are “officers, shareholders, persons whose principal duties consist in supervising the work of other employees, or highly compensated employees…” (of course, the “shareholder” language here would generally not apply to governmental or nonelecting church plans). Basically, if a plan sponsor provides a uniform vesting schedule for all employees, it will satisfy this latter provision. You can find the rules on this in old IRS Publication 778. Note that these pre-ERISA vesting rules clearly apply to 401(a) church and governmental plans by reason of Code section 411, which provides the vesting rules. It is not clear that they apply to 403(b) plans, which are generally not subject to Code section 411, though the IRS revenue ruling on 403(b) plan termination indicates that you at least need to vest 403(b) plans on plan termination (because until then, they are deemed to be subject to 403(c), not 403(b)).

 

Thus, the pre-ERISA vesting provisions allow for far greater flexibility than current law applicable to plans covered by ERISA. However, as a practical matter, many governmental and non-electing church plans opt not to take advantage of this flexibility, instead providing for 100% immediate vesting, or a vesting schedule that would satisfy current law. For details on the vesting schedules permitted under current law, see this Ask the Experts column.

 

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

 

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

«