While most Americans are familiar with 401(k) plans as retirement-saving vehicles, there are lesser-known retirement and benefit plans. One example is the 401(a) plan, typically offered by not-for-profits, government agencies, and educational institutions, as opposed to private companies. These plans can be customized by the employer and are often offered as a loyalty incentive. In some cases, public employees may be given 401(a) plans in lieu of government pensions.

Key Takeaways

  • 401(a) plans are offered by governmental entities and other public employers like schools and non-profit entities.
  • The terms of a 401(a) plan are set by employers and are highly customizable.
  • 401(a) plans may be available to a select group of employees to foster their loyalty.

The Internal Revenue Service (IRS) draws upon Section 401(a) of the tax code to formulate rules for the administration of 401(a) plans. These rules are similar to rules set for 401(k) plans, which is a subset of section 401(a).

A 401(a) plan can take many shapes. They can be a profit-sharing plan, money-purchase pension plan, or employee stock ownership plan. The employee contribution amounts are governed by the employers, who must also contribute to the program. Contributions can either be made on a pre-tax or post-tax basis.

A 401(a) plan resembles a 403(b) tax-sheltered annuity plan. Administrators of 401(a) plans must file Form 5500 reports annually with the IRS.

Specific IRS Guidelines

As of 2021, the maximum allowable contribution to a 401(a) plan is $58,000 or 100% of salary, whichever is smaller. This is up from $57,000 in 2020.

As with most other retirement plans, participants who withdraw from their 401(a) prior to reaching 59½ must pay a 10% early withdrawal penalty. Also, they must begin taking required minimum distributions (RMDs) upon reaching the age of 72. This is a change from the previous RMD age of 70½, thanks to the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

Contributions to 401(a) plans can come from a variety of sources, including:

  • Employer contributions that are a fixed dollar amount or salary percentage.
  • Mandatory employee contributions made on a pre-tax basis.
  • Employee contributions that are elective and made on an after-tax basis, up to 25% of total salary.
  • Employer matching contributions.

Who Dictates the Terms of a 401(a) Plan if Not the IRS?

In some cases, because 401(a) plans are so customizable, the terms and conditions are dictated by the sponsoring employer, rather than by specific IRS guidelines. For example, in addition to delineating the investment options available in these plans, employers govern whether employee contributions are voluntary or mandatory, the amount of each employee's contribution, the degree to which that contribution is matched by employer funds, and whether contributions can be made with pre-tax or after-tax dollars.


Employees with 401(a) plans may not simultaneously partake in 401(k) plans.