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Can employer limit number of annual salary reduction changes?


Guest Mike

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Now that the law allows an employee to make more than one salary reduction agreement in a plan year, can an employer place more restrictive limits, say only one change per quarter, two changes per year, etc? I know that the elections are now governed under the 401 rules, but I'm having trouble finding an answer (still new at this business with 403(B) plans!).

We are in the process of updating a school district 403(B) program and the district wants to continue to impose restrictions on the number of election changes if possible.

Thanks for any comments...

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Guest CVCalhoun

I can't see why not. Most 401(a) plans limit the number of times an employee can change elections.

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query - would an employer imposed limitation result in the plan becoming subject to ERISA if it wasn't otherwise? (many school district plans don't provide matching contributions and generally don't impose many limits on number of providers.)

Might this violate the "sole involvment" requirement of 2510.3-2(f)(3)?

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Guest CVCalhoun

I have to admit that because this question involved a school district (which, as a governmental entity, is not subject to ERISA whatever it does), I did not specifically discuss the impact of the "sole involvement" rules. However, although there is admittedly absolutely no authority on the issue, I would tend to doubt that the sole involvement rules would be an issue in any event. One of the things the employer is clearly entitled to do under the rules is to enter into salary reduction agreements. I cannot see how agreeing to enter into agreements no more often than, say, quarterly would represent more employer involvement than agreeing to enter into agreements as often as the participant desired. It seems to me that this is quite different than, say, having the employer involved in hardship distributions, which involves the employer in features of the 403(B) plan other than salary reduction agreements.

[Note: This message was edited by CVCalhoun]

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