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Government "pick-up" plan


Guest Paul Jalazo
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Guest Paul Jalazo

I have a client who sponsors a db pension, 401(k) and money purchase pension plan.

The money purchase pension plan is a social security replacement plan under which the employer contributes 7.65% of compensation and the employee contributes 7.65% of compensation.

The employee poortion is currently after-tax, but the employer is considering utilizing 414(h) and treating the employee portion as employer pre-tax contribution.

Other than 415 issues with the definitiuon of compensation, is there any issue that would prevent me from amending the 401(k) and defined benefit pension plans to define compensation for benefit purposes (not 415) to include the pick-up contribution?

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No problem! In fact, this was one of the reasons for Code section 414(h)(2) in the first place--to permit an entity to treat a contribution as an employer contribution for income tax purposes (and therefore as pre-tax) even if it was treated as an employee contribution (and therefore not deducted from compensation) for plan purposes.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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