A schoold district adopts a 403(B) arrangement for its superintendent as the only employee. The 403(B) has a vesting schedule and provides that upon forfeture, any nonvested balance reverts to the school district. Does anyone have problems with this approach under the tax law?

Since immediate vesting was required only under the exclusion allowance which was repealed after 12/31/01, there is no prohibition in having deferrred vesting requirement in either an ERISA or non ERISA plan. Deferred vesting is permitted under IRC 415©.

While your question infers it, you didn't actually say that these are non-elective contributions, e.g., employer contributions, not elective deferrals. Of course, you cannot use a vesting schedule for elective deferrals. Just being precise!

If the contributions will be made to an individual annuity contract, you should read the contract to determine whether it provides for vesting and has a mechanism to forfeit and to return forfeited amounts to the employer. I have not looked at whether it is permissible for 403(B) forfeitures to revert to the employer.