Government Pick-ups

[LIBOR]

I'm currently involved with a municipal DB plan that calls for mandatory ee contributions.

With limited understanding of 414(h)(2) my impression is that the plan can be amended to replace or augment the mandatories with a "pick-up" arrangement.

We're currently funding the plan under the Projected Unit Credit method and the annual suggested Town contribution is comprised of net service cost ( i.e total service cost net of mandatories) plus an amortization of the unfunded.

Since the "pick-ups" are employer contributions, they would just go towards the suggested Town contribution described above, correct ??

And lastly, if the "pick-up" arrangement augments the current mandatory arrangement & if the mandatories are a % of base pay, then base pay would include the "pick-up" amounts, correct ??

[Guest wcasay]

It doesn't matter what actuarial cost method you are using to fund the pension plan. With limited exceptions, if the plan has mandatory emplyee contributions as part of their benefit structure and the governmental entity amends the plan to include a IRC 414(h)(2) provision, all subsequent mandatory employee contributions will be "recharacterized" as employer contributions for tax purposes.