I have been told that in the employee's year of retirement they can shelter up to $13,000 of vacation pay and administrative leave pay that they have not used. I can't seem to find anything on this subject. Could someone please point me to a Code Section or something similiar?

The 403(B) examination guidelines specifically state that 403(B) deferrals cannot be made out of, and includible compensation does not include, any amounts of vacation, sick leave, etc. which were accrued in a prior year.
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Employee benefits legal resource site

Unused sick leave & unused vacation pay earned in years prior to the current one cannot be included as includible compensation for purposes of the exclusion allowance calculation; however, under legislation passed in 1996, contributions to a 403(B) plan are now permitted to be made from checks which contain unused sick leave & unused vacation pay. The salary reduction agreement must, of course, be executed prior to that money being made available to the employee. My review of the Examination Guidelines (1999 final version) does not dispute that.