401(a) Retirement Plan
Retirement plan designed for government, organizational, and educational employees.
What is a 401(a) Retirement Plan?
A 401(a) plan is also known as a Money Purchase Plan. It is a qualified, defined contribution, employer-sponsored retirement plan for public employers.
This plan is similar to a 403(b) plan, with the key differences being the type of organization that offers the plan and contribution requirements.
A 401(a) is a great retirement plan for public employers and non-governmental organizations to help ensure there are ample funds when it comes to retirement.
How Does a 401(a) Plan Work?
In most plans, only the employer will make contributions. The employer may allow for additional contributions by the employee, but it varies by plan.
In addition to enrollment in the plan being mandatory, it can also be mandatory that the employee makes contributions to the plan.
Within a 401(a) plan, the employer has more control over the plan structure than they would in a typical 401(k) plan. Employers are able to establish:
- If the plan allows loans
- The vesting schedule of the plan
- Which employees are eligible to enroll
- When the employees become enrolled
- Which investment options are available
- If the employer will match contributions
- Employer Voluntary or mandatory contributions
401(a) Vesting
A 401(a) plan's vesting schedule will determine when the employee gains ownership of the employer contributions.
Any contributions the participant makes will be automatically vested, but employer contributions will need to follow a vesting schedule.
A plan's vesting schedule typically takes two to seven years to become fully vested in the plan. Once fully vested, the participant has full ownership over the contributed funds.
When a participant separates from the organization only the vested balance will move with them.
401(a) Contribution
The 401(a) plan design will decide if employees are required to contribute. It will also allow the employer to set a contribution amount.
There are four possible contribution designs within a 401(a) plan:
- Mandatory employer contributions
- Mandatory employee contributions
- Employer matching contributions
- Voluntary employee elective contributions
Contributions can be set up as “pre-tax” or “post-tax”, at the discretion of the employer.
Pre-tax contributions would be taken from gross income, reducing taxable income for the contributor. Taxes will be paid when withdrawals are taken at retirement.
For post-tax contributions, it comes from taxed income, so when it is withdrawn no taxes are paid.
The employer is required to make contributions to the plan. These contributions may be a percentage of salary or a fixed dollar amount.
It is possible for a 401(a) plan to mandate employee contributions. These employee contributions are made on a pre-tax basis as such contributions to a 403(b).
In addition to the mandatory contribution, the employee may be allowed to make additional contributions.
These voluntary contributions are on an after-tax basis, so they do not reduce taxable income. It is capped at 25% of the employee’s annual income.
The current 401(a) contribution limits are:
- 2023 401(a) contribution limit is $66,000
- 2022 401(a) contribution limit is $61,000
- 2021 401(a) contribution limit is $58,000
These limits include both employer and employee contributions. It does not include the catch-up contribution limit.
401(a) Pros and Cons
401(a) Plans can offer many benefits to plan participants compared to a 401(k), 403(b), or a Simple IRA, but there are also situations where a 401(a) plan falls short.
Due to the extended control the plan sponsor has over provisions in the plan, the participant will not be able to make as many decisions as they would in a different retirement plan.
Contrarily, the employer is required to contribute to the plan and may require the participant to as well, resulting in more money going to the retirement account.
Regardless, it is essential to take advantage of employer-sponsored retirement plans as soon as possible, especially if an employer is going to participate in funding the retirement.
401(a) Plan Advisor Services
Langan Financial Group has been working with retirement plans, including 401(a) plans, for over 35 years.
We help provide retirement plan advisory services to numerous municipalities and government employees.
Langan Financial Group will work with organizations to help ensure their retirement plan is providing the best value to the organization and employees it can. We will:
- Benchmark the plan to help keep costs competitive
- Benchmark the plan to help keep the organization's liability low
- Review the plan to ensure it is doing what it is supposed to be doing
- Review the plan's design to ensure it aligns with your goals and needs
- Engage the employees through financial seminars, one on one financial planning, and other methods to help them with retirement planning
Chat with a 401(a) Advisor
Give us a call at 717-288-1880 to see how our local advisors can help with your employer retirement plans.
Or visit our 401(a) advisor contact page to fill out an inquiry.
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Harrisburg, PA Office
Address: 1863 Center St, Camp Hill, Pa 17011
Phone: 717-288-1880
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