I understand Rev Rul 81-35 & 81-36 requirement that in order for employee contributions to be considered "picked up" by the employer the ee cannot have the4 option of chhhosing to receive amounts diretly insead of having them paid to er; however, I am confused by more recent PLRs which seem to allow er "pick up" of voluntary contribution amounts (i.e., purchase of "permissive service credits" and "past service credits), so long as such voluntary amounts are contributed pursuant to irrevocable payroll deductions. (e.g. PLR 9737034 & 9832041). We've got a gov't er that has established a money purchase pension plan with a 12% employer contribution (not a picked up contribution) and, in addition, they want to have an option of allowing participants to make voluntary employee contributions which will then be "picked up" under 414(h)(2). Will this work? Did these rulings have the effect of extended the appl8cation of 414(h)(2) to elective contributions (so long as irrevocable salary reduction election is made by participant)?

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LKP

I believe what you propose will not work. The PLRs you cite appear to be inconsistent with the requirements in 1.401(k)-1(a)(3)(iv) and 1.402(a)-1(d)(2)(iii) for one-time irrevocable elections. There would be nothing left of 81-35 and 81-36 if what you propose were allowed. I think the best you can do is to structure contributions to fit within those allowed by the PLRs and then get your own PLR.

I would agree with Everett on this one. Because the private letter rulings are inconsistent with the statute and regulations, and because a private letter ruling is not binding on the IRS with respect to any taxpayer other than the one which requested it, I advise clients to be extremely cautious about relying on the rulings you mention, even if the facts are identical. And to the extent that you are not dealing with a purchased service credit situation, the IRS might well see multiple elections are undercutting the prohibition on governmental plans (other than grandfathered ones) including 401(k) features.
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Employee benefits legal resource site

Thank you--this is just the sort of feedback I need.

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LKP

If a governmental employer establishes a money purchase plan with a 414(h) provision, is participation by all employees mandatory or can an employee choose not to participate and thereby not receive an employer contribution?

Also, to CVCalhoun, on 7-16-99 you posted an answer to a question from Anne Comer re voluntary pre-tax contributions in a 401(a) plan. It suggests that participation in a plan with 414(h) provision could be voluntary but that if an employee opted not to participate the election would have to be a one-time election for the duration of the EE's employment. You specifically referenced a DB plan in your example. How would this work in a DC plan? Can participation be a condition of employment or can it just be a voluntary one-time election? And in the latter case, what are the financial consequences to an EE who choses not to participate? Thanks for the feedback.



[This message has been edited by mmagidson (edited 01-07-2000).]