Can Participants Opt Out of Employee Mandatory Contributions to a 401(a) Plan?

Q: I read your Ask the Experts column on 414(h) “pick-up” employee mandatory contributions to a governmental 401(a) plan. Can participants opt out of this feature?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Unlike 403(b) mandatory contributions, for which it is possible for a participant to make a one-time, irrevocable election to opt out of the plan if the plan permits, there is no similar opt-out feature for 414(h) “pick-up” mandatory contributions to a governmental 401(a) plan.

Specifically, Revenue Ruling 2006-43 states the following:

“[A] contribution to a qualified plan established by a State government will not be treated as picked up by the employing unit under § 414(h)(2) unless the employing unit … does not permit a participating employee from and after the date of the ‘pick-up’ to have a cash or deferred election right (within the meaning of § 1.401(k)-1(a)(3)) with respect to designated employee contributions. Thus, for example, participating employees must not be permitted to opt out of the ‘pick-up’, or to receive the contributed amounts directly instead of having them paid by the employing unit to the plan.”

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.

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