Employer Plans

Employer plans are created by private companies and by public entities. The plans have established rules that govern retirement age and the pension formula for employees.

A subtraction may be allowed on the Michigan return for qualifying distributions from pension/retirement plans.

For both public and private employer plans, an employee must:

• retire under the provisions of the plan,
• the pension benefits must be paid from a pension trust fund, and
• the payment must be made to either the employee or the surviving spouse.

Payments made to the surviving spouse are only deductible if the employee qualified for the subtraction at the time of death.

Although traditional employer plans are defined contribution and defined benefit plans, many employers use 401(k) or 403(b) plans that incorporate employee match provisions.

Plan distributions are considered qualified distributions to the extent that they are attributable to the employer’s contributions or employee’s contributions that were mandated by the plan.

An employee’s contribution required by the plan to elicit an employer match is considered mandated.

Amounts distributed from the plan that allow the employee to set the amount of compensation to be deferred and does not prescribe retirement age or years of service does not qualify as pension benefits.