Rev. Rul. 67-387

A political subdivision of a state contributed, on behalf of its employees who perform services for an educational institution as defined in section 151(e)(4) of the Internal Revenue Code of 1954, additional amounts into the state teachers retirement system to purchase additional retirement benefits unrelated to the basic benefits provided under the system. The additional amounts are maintained by the state in a fund separate from the fund used to provide statutory benefits payable under the retirement system. Under the purchase arrangement, an obligation is created whereby each employee obtains a nonforfeitable, nontransferable right to receive an annuity. The death benefit provided under the arrangement cannot at any time exceed the larger of the reserve or the contribution made in respect of the deceased employee.

Held, the purchase arrangement constitutes the purchase of a nontransferable annuity contract by the employer for its employees within the meaning of section 403(b) of the Code.