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Employment Contract or Plan Document


Guest Clain
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I have been approached by a county-owned hospital to look at the investment platforms for their 457(b) and 401(a) matching plans. It has been brought to my attention that the contracts for the physicians employed by the hospital specifically preclude them from receiving contributions to the 401(a) plan. There is no such provision in the plan document that excludes them from receiving these matching 401(a) contributions. The hospital's attorney (who admits no knowledge of retirement plan matters) claims the contracts takes priority over the plan documents. My understanding is that the plan document overrides any other agreements.

Can anybody shed some light on which is correct, and possibly provide a citation that explains the answer? Thank you.

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I would say that the plan trumps. A plan must be operated in accordance with its terms (or be disqualified) and any amendment that would take away participation to which an individual was entited prior to the amendment would be a prohibited cutback.

The best citation I could give would be Microsoft v Vincenzo which found that (misclassified) independent contractors (whose contract clearly described that they were not entitled to benefits in exchange for more cash compensation) were still entitled to those benefits because they were employees that were not excluded from participation under the terms of the plan.

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It's also possible that the plan document allows otherwise eligible employees to waive participation - the employment contract might be consider a waiver under that clause; that might be a way to find the plan and employment contract consistent.

The plan does have a waiver clause, but I am have been discounting that since the employment contract says specifically that the doctors are not eligible, rather than giving them an option to waive participation.

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The plan does have a waiver clause, but I am have been discounting that since the employment contract says specifically that the doctors are not eligible, rather than giving them an option to waive participation.

The doctors had to sign the contract - that was voluntary and could be considered a waiver. The way to interpret the plan consistently with the contract is to consider the contract a waiver. Anyone challenging that interpretation would have an uphill battle as the plan administrator is entitled to interpret the plan. Of course, it could be clearer.

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If the contract was entered into after the latest plan adoption, Locust is correct: the contracts could be construed as a waiver. The plan should have adopted a plan amendment barring participation by groups/individuals who are precluded from participating under their CBA or contract of employment simultaneous with the execution of the contracts. A belated remedial amendment should still be adopted.

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  • 1 year later...
Consider whether the employment contracts are effective to amend the plan

Along these lines, assume a company aquires a subsidiary and the contracts with the employees of that subsidiary promise to amend the plan to include service with that subsidiary prior to acquistion. Does an employee who terminates before the amendment is actually made become a participant in the plan (assuming their pre-acquistion service with the subsidiary would have been sufficient)?

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