(b)lines Ask the Experts – Waiver of Participation in a 401(a) Plan

January 26, 2010 (PLANSPONSOR (b)lines) – A county government employee does not want to participate in the county's money purchase plan, in which only employer contributions are made.

A plan provider asks: “Can a governmental 401(a) money purchase plan provide for a “waiver of participation” in which an employee declines to become a participant in the plan by filing a written waiver of participation with the plan administrator?”

David Powell, Groom Law Group, Chartered, says:

If the plan does not permit it, the answer is simply “no”. 

But frequently, such governmental plans require mandatory employee contributions.  These can be pre-tax if they fit within the definition of a “pick up” contribution under Internal Revenue Code section 414(h). Past private letter rulings ruling under that Code section have generally permitted one-time, irrevocable waivers of participation (and exemption from having to make such contributions by salary reduction) upon initial eligibility to participate in a 401(a) plan, but it is understood that the Internal Revenue Service may have reservations regarding whether such one-time irrevocable elections are permissible under 414(h), and caution (and probably seeking one’s own private letter ruling) is advised if a plan wishes to so provide. 

Where the waiver of an entirely employer-paid benefit is in question (setting aside why an employee would want to do so), whether a plan could provide such a thing raises a number of tax issues (and ERISA issues as well, if the plan were subject to ERISA), and it is not clear it can be done.


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.