What Is a 401(a) Retirement Plan?

A 401(a) retirement plan serves as a tax-advantaged savings vehicle designed to help eligible employees accumulate funds for their post-employment years. This type of plan is a defined contribution arrangement, meaning that contributions made by either the employer, the employee, or both are specified, but the ultimate benefit received at retirement depends on the investment performance of the accumulated funds.

Understanding the 401(a) Plan

A 401(a) plan represents a qualified retirement plan established under Section 401(a). These plans are primarily sponsored by governmental entities and certain tax-exempt organizations, distinct from the private, for-profit sector. These plans can take several forms, including profit-sharing plans, money purchase plans, or stock bonus plans, each with slightly different contribution mechanisms. For instance, a money purchase plan typically requires fixed employer contributions, often as a percentage of an employee’s compensation. Contributions to a 401(a) plan generally grow tax-deferred, meaning participants do not pay taxes on earnings until they withdraw funds in retirement.

Key Features of 401(a) Plans

Eligibility for participation in a 401(a) plan is determined by the sponsoring employer, often requiring employees to meet certain age and service requirements, such as being at least 21 years old and completing one year of service. Contributions to these plans primarily come from the employer, which can be mandatory or discretionary, depending on the plan’s design. Some 401(a) plans also permit voluntary employee contributions.

Employer contributions typically follow a vesting schedule, which dictates when an employee gains full ownership of the employer-provided funds. Common vesting schedules include cliff vesting, where an employee becomes 100% vested after a specific period (e.g., three years), or graded vesting, where ownership gradually increases over several years until full vesting is achieved. For instance, a graded schedule might vest 20% after two years, and an additional 20% each subsequent year until 100% vested after six years. Employee contributions, however, are always 100% vested immediately.

Distribution rules for 401(a) plans generally align with other qualified retirement plans. Funds can typically be withdrawn upon retirement, termination of employment, or reaching a specific age, often 59½. Withdrawals before age 59½ may be subject to a 10% early withdrawal penalty, in addition to ordinary income taxes, unless an exception applies, such as disability or separation from service after age 55. The IRS sets annual contribution limits, which for 2025 allow a combined employer and employee contribution of up to $69,000, or 100% of the employee’s compensation, whichever is less. This limit includes both employer and employee contributions, but does not include catch-up contributions for those aged 50 or over.

Who Offers and Participates in 401(a) Plans

401(a) plans are predominantly offered by public sector employers across the United States. This includes federal, state, and local government agencies. For example, employees working for city municipalities, public school districts, state universities, or federal departments often have access to a 401(a) plan. These plans serve a wide range of public servants.

Beyond governmental entities, certain tax-exempt organizations, such as non-profit hospitals, charitable foundations, or research institutions, may also sponsor 401(a) plans for their employees. These organizations are typically exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. Unlike the private, for-profit sector, where 401(k) plans are prevalent, 401(a) plans are less common and usually not available to employees of standard private companies.

401(a) and 401(k) Distinctions

While both 401(a) and 401(k) plans are defined contribution retirement vehicles, they serve different employer types and have distinct operational characteristics. The most significant difference lies in who sponsors them: 401(a) plans are almost exclusively offered by governmental entities and select non-profit organizations, whereas 401(k) plans are the standard for private, for-profit companies.

Regarding contributions, 401(a) plans often feature substantial, and sometimes mandatory, employer contributions, with employee contributions being optional or a secondary component. Conversely, 401(k) plans primarily revolve around employee salary deferrals, where employees contribute a portion of their pre-tax wages, often supplemented by employer matching contributions.

The regulatory oversight also varies; governmental 401(a) plans are generally exempt from the Employee Retirement Income Security Act (ERISA), a federal law that sets minimum standards for most private industry retirement plans. This exemption means governmental 401(a) plans operate under different rules concerning reporting, disclosure, and fiduciary responsibilities compared to ERISA-governed 401(k) plans. Non-governmental 401(a) plans, however, are typically subject to ERISA. Furthermore, while automatic enrollment is common in 401(k) plans, where employees are automatically opted into the plan unless they choose to opt out, it is less frequently implemented in 401(a) plans.