Can a 403(b) plan include a pickup provision in addition to allowing salary deferrals?

If you are refering to 414(h)(2) pickups, 414(h)(2) does not apply to 403(b) plans. In all cases I can think of, 414(h)(2) pickups involve mandatory employee contributions. The pickup consists of the employer agreeing either to fund the employee contributions or, if funded by the employees, to make the contribution pre-tax.

Everett,

Do you have any authority that would prohibit a 403(b) plan form including a pick-up provision. What about a403(b) plan sponsored by a state school that requires participants to contribute a certain percentage of compensation to the plan? Such a provision would seem to be more like a pick-up than a salary deferral and I think there are several plans that have these provision.

How about 414(h)(1), which says the provisions apply to amounts contributed to either an employees' trust described in 401(a) or under a plan described in 403(a)? I've never seen any 403(a) type; the ones I've seen have always been a feature in a qualified plan.

Peter:

I've not worked with a 403(b) plan requiring mandatory employee-funded contributions, but perhaps the following will help.

As saabraa writes, the following IRC Section 414(h) limits pickups to 401(a) plans and 403(a) annuities:

"(1) IN GENERAL

Effective with respect to taxable years beginning after December 31, 1973, for purposes of this title, any amount contributed--

"(A) to an employees' trust described in section 401(a), or

"(B) under a plan described in section 403(a), shall not be treated as having been made by the employer if it is designated as an employee contribution.

"(2) DESIGNATION BY UNITS OF GOVERNMENT

"For purposes of paragraph (1), in the case of any plan established by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing, where the contributions of employing units are designated as employee contributions but where any employing unit picks up the contributions, the contributions so picked up shall be treated as employer contributions."

The following is from IRC Section 403(b)(12)(A):

"For purposes of clause (i), a contribution shall be treated as not made pursuant to a salary reduction agreement if under the agreement it is made pursuant to a 1-time irrevocable election made by the employee at the time of initial eligibility to participate in the agreement or is made pursuant to a similar arrangement involving a one-time irrevocable election specified in regulations."

IRM 4.72.13.5.1.1(1) (03-01-2005) states:

"Elective deferrals for income tax purposes do not include elective contributions made pursuant to a one-time irrevocable election that is made at:
"a. initial eligibility to participate in the salary reduction agreement, or
"b. pre-tax contributions made as a condition of employment."

Proposed 1.402(g)(3)-1(b) states:

"Notwithstanding paragraph (a) of this section, for purposes of section 402(g)(3)©, an elective deferral only includes a contribution that is made pursuant to a cash or deferred election (as defined at section 1.401(k)-1(a)(3)). Thus, for purposes of section 402(g)(3)©, an elective deferral does not include a contribution that is made pursuant to an employee's one-time irrevocable election made on or before the employee's first becoming eligible to participate under the employer's plan or a contribution made as a condition of employment that reduces the employee's compensation."