A 401(a) plan is a defined contribution retirement program for public employees. Typically provided by government agencies, this employer-sponsored benefit plan allows participants to save for retirement on a tax-advantaged basis and may be offered alongside other savings plans as part of an employee’s benefit package.
The primary difference between 401(a) and 401(k) plans lies in the employer’s status. Most of the time, private-sector employers offer 401(k) plans. If you work for a government agency, they’ll likely offer you a 401(a) plan and, in certain cases, participation is mandatory. Another notable difference is the number of options available.
What Is a 401(a) Plan?
A 401(a) plan is a type of employer-sponsored, defined contribution retirement plan primarily offered to public-sector employees, such as government workers, educators, and nonprofit staff. This tax-advantaged plan helps employees save for retirement and is often included as part of a broader benefits package.
How Does a 401(a) Plan Work?
Established under Section 401(a) of the Internal Revenue Code, this retirement plan can function as a pension, profit-sharing, or stock bonus plan. Contributions may be made by the employer, the employee, or both, based on a fixed percentage or dollar amount outlined in the plan agreement.
When an employee leaves the organization, they can usually roll over their funds into another qualifying retirement account.
Key Features of a 401(a) Plan
1. Contribution Limits
Like other retirement plans, 401(a) accounts are subject to IRS limits that may change yearly due to cost-of-living adjustments.
- In 2023, the contribution limit was $66,000, with a compensation cap of $330,000.
2. Minimum Participation Requirements
To offer a 401(a) plan, an organization must meet minimum employee participation thresholds:
- Either 50 employees, or
- The greater of 40% of all employees or 2 participants
These standards must be met each day of the plan year.
3. Nondiscrimination Testing (NDT)
401(a) plans are subject to nondiscrimination testing, which ensures benefits are provided fairly across all employee levels. This prevents highly compensated employees from receiving disproportionate advantages.
4. Vesting Schedule
Employers may implement a vesting schedule based on years of service, which determines how much of the employer’s contributions an employee can take with them upon leaving or retiring.
5. Required Minimum Distributions (RMDs)
Participants must begin taking required minimum distributions by April 1 of the year after they either:
- Reach age 73 (per SECURE 2.0 Act), or
- Officially retire, unless they own 5% or more of the organization
6. Early Withdrawals
Withdrawals made before age 59½ are taxed as regular income and may incur a 10% early withdrawal penalty, unless an exception applies.
Benefits of a 401(a) Plan
- Pre-tax contributions lower taxable income during working years
- Tax-deferred growth until retirement
- Possible eligibility for tax credits based on income and contributions
- Portability: funds can be rolled over if employment changes
401(a) vs. 401(k): What’s the Difference?
| Feature | 401(a) | 401(k) |
| Offered by | Government & public sector employers | Private sector companies |
| Participation | Often mandatory | Usually voluntary |
| Contribution structure | Fixed by employer | Flexible for employee |
| Plan types | Fewer options | Multiple variations (e.g., Traditional, Roth, Safe Harbor) |
In short, 401(a) plans are more structured and employer-controlled, while 401(k) plans offer more flexibility to individual employees.
