TN 10 (09-90)

A. INTRODUCTION

A retirement plan or system established and maintained for its employees by a State or political subdivision thereof, may provide for the employer to “pick-up” or pay the employee's share of a retirement plan contribution. This section explains when the picked-up contribution is and is not excluded from wages under sec. 209(a)(4) of the Act (see RR 81-35 and RR 81-36).

B. POLICY

Effective January 1, 1984:

1. Contributions are Wages

Contributions to a plan are wages whenever they are paid under a salary reduction agreement (RS 01402.010), even if the plan would qualify as tax exempt under RS 01402.110B.2.b.

2. Contributions are not Wages

1. When the employee does not have the option to select cash in lieu of the “picked-up” contribution. The “picked-up” employee's share is then treated as the employer's contribution (i.e. employer's funds).

2. When the criteria for an exempt plan under sec. 414(h)(2) of the IRC are met, the contributions are then excluded from wages under sec. 209(a)(4)(F) of the Act.