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Pick Up Contributions


Guest Lucie
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Guest Lucie

Are pick up contributions counted as annual additions when the employer actually picks up the contributions (no salary reduction for employee)? Are pick up contribution counted as annual additions when the employer says there is a pick up arrangement but the contribution is actually made via the employee's salary reduction? I have seen elsewhere a statement that they are not counted as annual additions in either case but can't find any cite to support that.

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The cite is really 414(h)(2) itself, which states that the contributions are treated as if they were employer contributions. Thus, they are part of annual additions if and only if they would be part of annual additions if the employer had made them without salary reductions. For example, an employer contribution to a defined benefit plan would not normally be treated as part of annual additions, unless the contribution was credited with actual trust earnings (and therefore would be treated as made to the defined contribution portion of a hybrid defined benefit/defined contribution plan).

Obviously, this is a gross simplification, and you'd need to consult the regulations under 415 to determine when an employer contribution is and is not treated as part of the annual addition. But the general rule is that a picked-up contribution is treated just the same as an employer contribution would be for annual additions purposes.

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Employee benefits legal resource site

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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Guest Lucie

Thanks for your help. Here's where I was confused - I was looking at item 16 of your Checklist of Federal Tax Law Rules Applicable to Public Retirement Systems (very helpful) and saw the reference that pick-up contributions are not part of annual additions. Post your message and upon again reading that item 16, I think it is written in the context of pickup contributions to a defined benefit plan.

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