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Final Pay Pick-up


DTH
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Happy Holidays!

An on-going governmental money purchase plan with a match wants to allow participants to elect 0% - 100% 414(h) pick-up of their final paycheck. The final paycheck will include accrued sick and vacation pay, which can be a large sum. It looks like they are trying to circumvent a CODA by calling the election a 414(h) pick-up. Can this be done? If yes, can you please provide a cite or PLR.

Thanks!

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The only way this works is if employees make a one-time irrevocable election when they first become eligible under any plan of the employer, and cannot later change that election.

Under Treas. Reg section 1.401(k)-1(a)(3)(iv):

A cash or deferred election does not include a one-time irrevocable election made no later than the employee's first becoming eligible under the plan or any other plan or arrangement of the employer that is described in section 219(g)(5)(A) (whether or not such other plan or arrangement has terminated), to have contributions equal to a specified amount or percentage of the employee's compensation (including no amount of compensation) made by the employer on the employee's behalf to the plan and a specified amount or percentage of the employee's compensation (including no amount of compensation) divided among all other plans or arrangements of the employer (including plans or arrangements not yet established) for the duration of the employee's employment with the employer, or in the case of a defined benefit plan to receive accruals or other benefits (including no benefits) under such plans.

Under Rev. Rul. 2006-43, 2006-35 IRB 329, a pick-up cannot be a cash or deferred arrangement. Thus, if employees are to have an election as to whether contributions are made, it must be a one-time irrevocable election made no later than the employee's first becoming eligible under the plan or any other plan or arrangement of the employer. See Private Letter Ruling 201532036 (August 7, 2015).

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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