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Why do they have deferred vested benefits if they're still employed?

If by "class-allocated" you mean that every participant is in their own group, then yes - as long as the document provides that contributions to each group are totally discretionary, the employer can elect to contribute $0 to any particular group. One good reason to keep a last day requirement, even with each participant in their own group, is that it allows you to exclude terminees with less that 500 hours of service from the coverage test. If you have low turnover, or a HCEs who do not receive an allocation, this may not be a concern.

Here are two public-law constraints to meet. 1. ERISA § 404(b) [29 U.S.C. § 1104(b)] commands “maintain[ing] the indicia of ownership of any assets of a plan [within] the jurisdiction of the district courts of the United States.” A rule allows holding securities through intermediaries if enough control is with a sufficiently regulated and capitalized U.S. bank, insurance company, or investment adviser. 29 C.F.R. § 2550.404b-1 https://ecfr.federalregister.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-F/part-2550/section-2550.404b-1 It is common for a U.S. bank or trust company to use non-U.S. subcustodians, depositories, and clearing agencies. 2. Under the Internal Revenue Code of 1986, a tax-qualification condition calls for a domestic trust. A trust, including a § 401(a) retirement plan’s trust, can be a “United States person” trust if (i) a U.S. court can exercise primary supervision over the trust’s administration; and (ii) a United States person has authority to control all substantial decisions of the trust. 26 C.F.R. § 301.7701-7 https://ecfr.federalregister.gov/current/title-26/chapter-I/subchapter-F/part-301/subpart-ECFRbb5a653881cc2c0/section-301.7701-7 It’s feasible to meet that rule without undoing a participant’s power to direct investment, even if the participant is not a United States person. If the plan’s governing documents would provide that “each Doctor is Trustee for her/his account”, the plan’s sponsor and fiduciaries might adjust those provisions regarding a participant who is not a United States person.