Help on 414(h)- Request general explanation!

[Guest PALAWYER]

There are many questions about 414(h) pickups-

Can anyone offer a brief summary of what this is all about- and can a Government Plan offer a Money Purchase Pension Plan under 401(a) with a mandatory 3% pre-tax contribution? how would you set this up.

[Carol V. Calhoun]

Basically, the way this is done is by using IRC section 414(h)(2), which provides that a contribution referred to in the plan as an employee contribution will nevertheless be treated as an employer contribution if it is picked up by the employer. Rev. Ruls. and 81-36 set forth the requirements for an employer pick-up within the meaning of http://frwebgate.access.gpo.gov/cgi-bin/multidb.cgi?WAISqueryString=26USC414&WAISdbName=1994_uscode_suppl_4+United+States+Code+(1994' suppl.+2)&WAISqueryRule=($WAISqueryString)&WAIStemplate=multidb_results.joel.html&WrapperTemplate=cong013_wrapper.html&WAISmaxHits=40">414(h)(2). Essentially, they state that an amount is considered to be picked up, even if the employee's salary is reduced by a corresponding amount, provided that (a) the employer designates the amount as picked up, and (B) the employee has no choice to receive the amount in cash as opposed to having it contributed to the plan. Various private letter rulings have ruled that a one-time irrevocable election on the part of the employee as to whether to have the amount contributed will not be treated as a choice within the meaning of (B).

Hope this helps!

[Carol V. Calhoun]

You may also find the message you can access by clicking on this link helpful:

http://benefitslink.com/boards/index.php?showtopic=2423