457/401(a) Government Plan

[twhisenant]

Got a government entity that wants to start a 401(a) plan that matches contributions to their existing 457 plan. They want to do a match formula of 0% for the first 4% and then match 100% of the next 4%. Are there any issues there?

[Peter Gulia]

Begin with considering whether State law empowers the particular employer to establish a 401(a) plan.

If it does, consider what conditions State law requires for a valid and proper creation of the plan.

[Carol V. Calhoun]

As Fiduciary Guidance Counsel says, in establishing any plan on behalf of a local government entity, you always have to check state law to make sure that the entity has the authority to establish a plan. However, if it does, there is no objection to using a 401(a) plan to match contributions to a 457(b) plan.

In fact, it makes a lot of sense in the context of a governmental plan to make 457(b) matching contributions to a 401(a) plan. If you had a 401(k) or 403(b) plan, you would typically make the match to the same plan, but only the pretax employee contributions, not the match, would be subject to the 402(g) limits. By contrast, all contributions to a 457(b) plan are subject to the limit of 457(b)(2). Thus, if you made the matching contributions to the 457(b) plan, a participant would be able to contribute less to the 457(b) plan.

And the fact that matching contributions kick in only at the 4% level would potentially be an issue for a nongovernmental plan due to Code sections 401(a)(4) and 401(m). However, a governmental plan is not subject to either of those sections.