SAN DIEGO -- San Diego County plans to unveil July 1 a 401(a) plan with several unusual features, including allowing employees to defer up to 25% of their pay.
Other features that set the plan apart are: the deferral choice -- ranging from 2.5% to 25% -- will be irrevocable; there will be no employer matching contribution in the plan; and employees' decision to join the plan also will be irrevocable.
The new plan, one of the few 401(a) plans nationwide to give employees the choice of deferral, is designed to complement the county's existing $400 million 457 plan, according to Neil J. Rossi, chief deputy treasurer.
"I have not seen this (a 401(a) plan with irrevocable features) in other governmental agencies," said Rich Koski, a principal with Buck Consultants, New York.
Plans with irrevocable elections have been around in the private sector for a long time, but he added, "if I've seen three or four in my career, that would be a lot."
San Diego County supervisors wanted to give county employees a choice of deferral rate, Mr. Rossi said. So, they rearranged the typical 401(a) plan design. Typically, the governing board decides what percentage of pay will be deferred, he explained. The reason is that under Internal Revenue Service rules, all employees in a class need to contribute the same amount to the plan. In order to get IRS approval of the plan, San Diego designed its plan to give participants the one-time-only choice of contribution rate.
"There's never been a plan where employees get to choose," Mr. Rossi said.
"We have a lot of employees who are maxed out in the 457 plan, and a lot of them need to save more for retirement," said Mr. Rossi, explaining the county supervisors' decision to add the plan.
"It's a real benefit and we felt we needed it."
San Diego County also has a $4.2 billion defined benefit plan.
A 401(a) plan is more portable than a 457 plan. A participant's 401(a) account assets can be rolled over into an individual retirement account when the participant leaves county employment. Participants with 457 plan accounts either must keep their money in the 457 plan or take a distribution, said Eric Wietsma, a director with Hartford Life Insurance Cos., Simsbury, Conn., one of the providers of the 457 plan and the new 401(a) plan.
The downside is that the irrevocable election of contribution percentage is not popular with some employees, Buck's Mr. Koski said. The average employee does not always know what percentage to contribute to the plan at the outset, he noted.
Unlike many 401(a) plans, which public entities often form so employers can make a matching contribution, San Diego's new plan will not offer a match. However, plan documents do allow for it should county officials decide to add one in the future, Mr. Rossi said.
Employees will have 90 days to decide, again irrevocably, whether to participate in the new plan. They will receive an irrevocable choice of deferring 2.5%, 5%, 10%, 15%, 20% or 25% of pay.
While irrevocability is unusual in government plans, because employers generally want the opportunity to convince participants to save more, county officials decided to include the provisions to facilitate IRS approval, Mr. Rossi explained.
The IRS recently issued a positive determination letter allowing the county to offer the new plan, Mr. Rossi said.
Officials have hired the same providers it has for its 457 plan: Hartford and T. Rowe Price Associates, Baltimore, he said. Each will offer a complete array of services including communications, education and investments.
The 401(a) plan is expected to offer about 37 investment options; the 457 plan has 43 options.
At the same time, county officials will be adding two brokerage windows, one from Hartford and one from T. Rowe Price, to the 457 plan. The 401(a) plan will not include a brokerage window, Mr. Rossi said.
The fund also is looking into adding investment advice for plan participants, he added.