A 401(a) plan is a type of defined benefit retirement plan that is sponsored by an employer. It is typically offered to employees of state and local government entities, and non-profit organizations. Contributions to a 401(a) plan are made by the employer and are usually based on a percentage of the employee’s salary. The benefits that employees receive from the plan are based on a formula that takes into account factors such as the employee’s salary and years of service. 401(a) plans are generally considered to be more restrictive than other types of defined benefit plans, but they offer a higher level of protection for employees’ retirement savings.
Employers have the option to offer a variety of retirement plans to their employees, each with its own set of rules and limitations. One such option is a 401(a) plan, which is typically offered to employees working in government agencies, educational institutions, and non-profit organizations. This plan is available to a wide range of employees, including government workers, teachers, administrators, and support staff.
A 401(a) plan has many similarities to a 401(k) plan, which is more common in profit-based industries. However, employees participating in a 401(a) plan cannot contribute to a 401(k) plan. If an employee leaves their employer, they do have the option to transfer their 401(a) funds to a 401(k) plan or an individual retirement account (IRA).
Employers can also set up multiple 401(a) plans, each with different eligibility requirements, contribution limits, and vesting schedules. These plans can be used to create incentives for employee retention. The employer is responsible for managing the plan and determining the contribution limits.
To be eligible to participate in a 401(a) plan, an individual must be at least 21 years old and have been working for their employer for a minimum of two years. These requirements may vary depending on the employer.