TN 24 (11-09)

Internal Revenue Code (IRC) Section 414(h)(2) provides that for any plan established by a governmental unit, where the contributions of employing units are designated employee contributions, but the employer “picks up” the contributions, the contributions are treated as employer contributions.

For the employee contributions to be deemed picked up by the employer and therefore to be characterized as “employer contributions”, certain tests must be met. A series of rulings by the IRS established that only amounts that the governmental employer pays but does not withhold or otherwise offset from the employee’s salary are considered employer contributions, and are therefore excludable from gross income.

For Social Security purposes the contributions must be paid not only by the employer, but also with employer funds in order to be excluded from wages for Social Security purposes.

See Details

• RS 01402.110, Employer Pick-Up Plans