What Is Employer Pickup


An employer may choose to pay or “pick up” employee retirement contributions as a means of deferring federal and state income taxes on these amounts.

Picked-up amounts are designated as employee contributions under Section 3307.26, R.C. These amounts, along with other employee contributions, are refundable to the member upon valid application.

The authority for employer pickup is the Internal Revenue Code. There are no Ohio laws or Administrative Code Rules governing this program.

Section 414(h)(2) of the Internal Revenue Code specifies two conditions for employer pickup of retirement contributions:

  1. The employer must specify that contributions, although designated as employee contributions, are being paid by the employer in lieu of contributions by the employee; and
  2. The employee must not be given the option of choosing to receive the amounts directly instead of having them paid by the employer to the pension plan.

The Internal Revenue Service (IRS) has also issued a private-letter ruling stating pickup may not be effective for contributions made before the date of the school board resolution implementing the plan. In other words, pickup plans cannot be retroactive.

Employers must notify STRS Ohio when a pickup plan is adopted or modified and submit a copy of the school board resolution. See Plan Adoption and Notification.

Tax Considerations

Picked-up contributions are not included in taxable income for federal or state income tax purposes at the time the contributions are made. Employers should contact tax authorities to determine the effect of employer pickup on city or local income taxes.

Picked-up contributions become taxable when the member receives the amounts in the form of a refund or retirement benefits. When picked-up contributions are included in a refund, federal and state income taxes may continue to be deferred by rolling over or transferring the picked-up contributions to an individual retirement account or other eligible employer plan. Members should contact a tax advisor or the IRS for additional information.

STRS Ohio agrees to account for the amount of the pickup but otherwise assumes no further liability. The current taxation or deferred taxation of the pickup is determined solely by the IRS, and compliance with the guidelines does not guarantee the tax on the pickup will be deferred.