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I don't think they can do that, and the employee cannot even voluntarily waive the contributions. Hopefully not everything is finalized - what should have been done is have the total settlement include and subsequent payment be offset by the 2019 contributions. Maybe the settlement agreement has some offset language already. Or maybe the employee (and/or lawyer) was very knowledgeable and agreed to the settlement knowing contributions would have to be made regardless. Just highlights the fact that all the employment related issues should have been/need to be thoroughly examined and discussed with qualified counsel for each (not necessarily legal counsel) before agreements are finalized.

Is there a human resources person he can speak to that can contact the Third Party Administrator, if they have one, administering the plan? I know for the TPA I work for it's the plan administrator that decides if a hardship meets all qualifications, not the 401k provider (e.g. Nationwide, MassMutual). Not sure if your husband's situation is the same re his 401k plan. Hope it works out for you!

I think this will give you your answer that you are looking for (from the current edition of Derrin's book). Hours worked for the staffing company are required to be counted when someone becomes an actual hire. Q 5:44 How do the leased employee rules affect a “lease to own” situation? Many employers will lease an employee for several months, or possibly longer, before offering them a permanent position with the company as an employee. This can simplify bookkeeping and reduce an employer’s unemployment insurance costs. If a recipient hires its former worksite employee, the employee is credited with all hours of service earned while working under the leasing arrangement, whether or not he or she satisfied the substantially full-time requirement. [Code §414(n)(4); BL 11, BL 135, BL 136] Example 5.44.1 Sandy’s Sweatshop leases Ellen from a temporary agency for three months, during which Ellen works 500 hours for Sandy. Sandy then hires Ellen directly. Ellen is already credited with 500 hours of service, even though Ellen was not technically a leased employee because she did not satisfy the substantially full-time requirement. Because the employment commencement date [Q 19:8] is the first day a worker is entitled to be credited with an hour of service, [DOL Reg. §2530.202-2(a)] Ellen’s first eligibility computation period begins when she started working for Sandy under the leasing arrangement. Remember that the longer a “temporary” worker stays with a company, the more likely it is that a court may find the company is the true common law employer. [See Q 3:28] The importance of this issue can transcend the importance of the leased employee issues. Example 5.44.2 Fancy Tools, Inc. has a good health plan for its employees. The plan document says all employees working over 30 hours per week participate. Fancy Tools needs a new shipping clerk. They contact Astaire Temps, who sends over Waldo as a temporary clerk. Waldo works there several months. Waldo is just like other Fancy Tools employees, except that Astaire gives him his paycheck. After four months there, Waldo contracts cancer and demands to have his medical costs covered under the plan, because he is Fancy Tools’ common-law employee. While that claim might have been rejected out of hand had he worked there only one week, it becomes more credible the longer he is there.