CASE OF THE WEEK – What is a “414(k) Plan?”

By Jenny Kiffmeyer, J.D – The Retirement Learning Center

What is a “414(k) Plan?”

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with an advisor in Nevada focused on plan design. The advisor asked: My client emailed me asking about a “414(k) plan.” Is that a new type of plan—or  was that a typo?”  

Highlights of the Discussion

While it may have been a typo, there is such a thing as a 414(k) plan—or more precisely—a 414(k) account.  A 414(k) account [created pursuant to IRC Sec. 414(k)] is a separate account within a defined benefit (DB) plan that is derived from employer contributions and, for the most part, is treated as a defined contribution (DC) plan [IRC Sec. 414(k)].

The 414(k) separate account balance is treated as a DC plan for purposes of satisfying the minimum participation and vesting standards, maximum contribution limitations, nondiscrimination tests for matching and after-tax contributions, and treatment of after-tax contributions as a separate contract [IRC Sec. 414(k)(1) and (2)]. To create a 414(k) account, the plan document provisions describing this separate account must contain language similar to the language of other DC plans.

Generally, contributions to a 414(k) account are in addition to the contributions that fund the DB plan’s basic retirement benefits and are used to enhance retirement benefits. The 414(k) separate account is credited with actual trust earnings. Under the individual account rules of IRC Sec. 414(i), 414(k) separate account benefits are based solely on the amounts contributed to the account and any income, expenses, gains, losses, or forfeitures that may be allocated to the participant’s account. 414(k) accounts may be appealing because they could allow participant direction of assets.

Certain transfers from the DB portion of the plan to the 414(k) separate account are prohibited: Sponsors cannot transfer

  • Excess earnings from the DB portion of the plan to the 414(k) separate account;
  • Assets from the DB plan to the 414(k) account; or
  • Excess DB assets to fund matching contributions in the 414(k) account.

Transferring a distribution from the DB portion of the plan to the 414(k) account is also questionable.


Not a new type of plan, a 414(k) account is a separate account within a DB plan derived from employer contributions and, for the most part, treated as a DC plan. The plan document must contain language to support this arrangement.


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