Because of the customizable nature of 401(a) plans, the Internal Revenue Service (IRS) has few hard-and-fast regulations for their administration. However, the guidelines in place are very similar to those set for the administration of 401(k) plans.
Specific IRS Guidelines
Though there are few specific limitations set by the IRS on 401(a) plans, some regulations do apply. As of 2017, the maximum allowable contribution to a 401(a) plan is 100% of the employee's income or $54,000, whichever is smaller. Though specific distribution regulations are at the discretion of the employer, in general, 401(a) distributions are subject to the same IRS regulations that apply to other retirement plans. This means distributions taken before age 59.5 are subject to an additional 10% tax. In addition, participants must begin taking minimum distributions upon reaching age 70.5.
Who Can Use a 401(a)?
While the 401(a) and 401(k) plans were created out of the same tax code, one important difference between the two is the type of employer that may sponsor them. In general, 401(a) plans are reserved for government entities or other public employers, such as schools and some nonprofits. In some cases, employees may have the option to participate in a 401(a) plan rather than in a government pension scheme.
In addition, though employer-sponsored 401(k) plans are generally extended to all employees with identical contribution, matching and vesting terms, 401(a) plans are more tailored and may be made available only to certain employees as a means of encouraging a continued commitment to the organization.
Who Dictates the Terms of a 401(a) Plan if not the IRS?
Because 401(a) plans are so customizable, many of the terms and conditions are dictated by the sponsoring employer rather than being specifically outlined by the IRS. For example, the employer determines if employee contributions are voluntary or mandatory, the amount each employee must contribute, the degree to which that contribution is matched by employer funds, whether contributions can be made with pretax or after-tax funds, and the types of investment options available.