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The employer probably could not condition making payments on the student's loan on the employee making deferrals to the 401(k). This would seem to violate the contingent benefit rule of Reg Sec 1.401(k)-1(e)(6). There's a similar rule under the 403(b) regs. There's nothing preventing the employer contribution to the 401(k) based on the employee making student loan payments as a profit-sharing contribution, other than the general nondiscrimination rules.

Bill, yes, good point. I assumed, and you know where that gets me...

What does the plan say? Our current VS 401(k) document has a box to check in the adoption agreement to indicate that the plan will not accept rollover contributions from "former Employees". If the box isn't checked, they can roll in. Our prior documents only allowed Employees to roll in. The plan document will tell you if she can roll the cash balance distribution into the 401(k). If the plan provisions are not clear, the document should give the Plan Administrator the authority to interpret the plan document. If she can roll it in, does the 401(k) document include or exclude rollover balances when determining if someone is under the cashout limit? The terms of the plan will determine whether or not her balance(s) can stay in the plan(s). I can't think of any problem with combining both distributions in the same IRA.

I believe I wrote that answer! :-)