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457 Vesting-- When Do Amounts Vest If Plan Is Silent?

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I have a question about when amounts vest in participants' accounts if the plan is completely silent and does not have any vesting provision or vesting schedule. The plan says "the employer MAY pay amounts" when participants reach normal retirement age, separate from service, etc. It does not say anything specifically conditioning vesting on future performance of substantial services.

 

If the plan is a 457(b) plan that does not say when amounts vest, when do amounts vest?

 

If the plan is an ineligible 457(f) plan and amounts vest when no longer subject to a substantial risk of forfeiture, if the plan is silent about any conditions of future performance or non-compete conditions, what is the default for when the amounts vest?

 

If you have any guidance, it would be appreciated.

 

Thank you!!

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457(b) plan contributions ("annual deferrals") are 100% vested. Amounts are NOT considered “annual deferrals” under a 457(b) plan if the amounts are subject to substantial risk of forfeiture (i.e. not vested).

 

§1.457-2(b) Annual deferral(s)

 

 

 

(1) Annual deferral(s) means, with respect to a taxable year, the amount of compensation deferred under an eligible plan, whether by salary reduction or by nonelective employer contribution. The amount of compensation deferred under an eligible plan is taken into account as an annual deferral in the taxable year of the participant in which deferred, or, if later, the year in which the amount of compensation deferred is no longer subject to a substantial risk of forfeiture.

If the employer has paired a 457(f) plan with the 457(b) plan, then I believe the nonvested amounts are under 457(f) and thus probably subject to 409A.

 

 

(2) If the amount of compensation deferred under the plan during a taxable year is not subject to a substantial risk of forfeiture, the amount taken into account as an annual deferral is not adjusted to reflect gain or loss allocable to the compensation deferred. If, however, the amount of compensation deferred under the plan during the taxable year is subject to a substantial risk of forfeiture, the amount of compensation deferred that is taken into account as an annual deferral in the taxable year in which the substantial risk of forfeiture lapses must be adjusted to reflect gain or loss allocable to the compensation deferred until the substantial risk of forfeiture lapses.

 

 

 

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Okay, if the amount is not 100% vested, then it is subject to the risk of forfeiture. If it is subject to risk of forfeiture, then it cannot considered part of a 457(b) plan according to the regulation cited below. The question asked is regarding vesting and a 457(b) plan.

 

Theoretically, a paired plan could be established to have any "nonvested amounts" be subject to 457(f), and then when "vested" they would then be considered as an annual deferral to the 457(b). But those "nonvested amounts" would not be part of the 457(b) plan because they are not yet vested.

 

I don't know of any "default" for when 457(f) accounts vest.

 

Does that help?

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Unfortunately that does not help--

Maybe I need to rephrase the question...

 

The issue is WHEN do amounts vest if the plan has no vesting schedule or provision saying vesting is immediate or vests on a certain date. The plan is SILENT. And nothing in the plan says anything is conditioned on the future performance of substantial services by the individual. So how can it be determined when amounts vest? If nothing in the plan subjects anything to substantial risk of forfeiture, is the default rule that 100% vests immediately, even if the plan is completely silent on that point?

 

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Also-- I appreciate your feedback and citing to that regulation, but what the regulation is telling us basically is that amounts are not counted against the contribution limits until they are vested. It does not tell us a default rule for WHEN the amounts actually vest, as far as I can tell... Am I missing that somehow? The examples show how if the employer contributions and employee contributions both vest in the same year, it can exceed the contribution limits and potentially cause problems... but both employer contributions and employee contributions are included in the "annual deferrals" amount that is defined in the regulation. Clearly, the rule is not that 100% of employer contributions vest immediately-- plans can provide otherwise if they choose to. The question is, do employee contributions need to vest immediately, or can they also have a vesting schedule or outside vesting date making them forfeitable? If not, what is the rule similar to a 411 rule that would apply to a 457 plan? And if the plan is silent, what is the default rule for when amounts vest?

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"is the default rule that 100% vests immediately, even if the plan is completely silent on that point?"

If the plan does not contain any 457(f) language spelling out an end to any substantail risk of forfeiture, then the answer is yes. This is because a 457(b) plan only holds amounts that are 100% vested. Is the plan document a 457(b) plan document? If so, then the only amounts held by the plan must be 100% vested. In general, 457(b) plans hold vested amounts, 457(f) plans hold nonvested amounts.

 

"The question is, do employee contributions need to vest immediately, or can they also have a vesting schedule or outside vesting date making them forfeitable?"

Assets in a 457(b) plan must be 100% vested (otherwise they are not in the 457(b) plan).

 

Do you think that there is also a 457(f) plan involved here?

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