PASADENA, Calif. - Los Angeles County offers its employees two 401(k) plans and a 457 plan that, unlike many governmental 457 plans, has a direct employer match.
The two 401(k) plans, with combined assets of $675 million, are "grandfathered plans," said Larry Uyeda, senior finance analyst for the County of Los Angeles Deferred Compensation Program. These are plans adopted before the 1986 federal prohibition against government 401(k)s. One plan is limited to management and management support personnel and attorneys working for the county; the other is limited to physicians employed by the county. Each plan has a 90% participation rate, he said.
The county's $2.3 billion 457 plan is available to all employees, Mr. Uyeda said. After the 1991 merger of the deferred compensation plan and a smaller thrift plan that had a match, the resulting plan continued the employer match.
All three plans are unbundled with Great-West Life & Annuity Insurance Co., Englewood, Colo., as the administrator, he said.
One reason many governmental employers opt to create 401(a) plans for employer contributions rather than make direct matches to 457 plans has more to do with Social Security taxes than with any Internal Revenue Code prohibitions against employer matches, said John K. Barry, assistant attorney general of Maryland. He wrote a chapter on match plans in the 2001 version of the National Association of Government Defined Contribution Administrators' Guidebook.
Employer and employee contributions to 457 plans are treated the same way: there is no tax until the money is paid out, when it is fully taxable, Mr. Barry said. Employer contributions, however, are subject to Social Security tax when they are made; and the percentage and dollar limits that apply to 457 contributions apply to the combined total of employer and employee contributions, he said. That is not the case with the other plans.
Despite the match, less than half of the county's employees participated in the 457 plan, Mr. Uyeda said. So, in January, the governing board, known as the Horizons Plan Action Committee, increased the match. It was raised to dollar for dollar up to 4% of compensation, from dollar for dollar up to 3% of compensation.
On Jan. 1, 46,700 of 80,000 eligible employees participated in the plan. By March 31, that number had increased to 48,700, Mr. Uyeda said. "The plan has been marketed a little more than in the past," he added.
The 401(k) plans have identical investment options. They are: the City National Bank Fund; Los Angeles County Stable Value Fund; BlackRock core bond portfolio; PIMCO High-Yield Fund; Dodge & Cox Balanced Fund; T. Rowe Price Growth & Income, International Stock, and New Horizons funds; Miller Anderson & Sherrerd Value Fund; State Street Bank & Trust Standard & Poor's 500 Flagship Fund; Putnam Investors Fund; Investment Counselors of Maryland Small Company portfolio; and three asset allocation portfolios for conservative, moderate and aggressive investors.