Suspended deferred contributions to Medical reimbursement account for

[Guest LAWRENCE GROVES]

An employee, participating in a cash or deferred arrangement ( 401(k))that is part of a profit sharing plan takes a hardship withdrawal and is suspended from making contributions for 12 months. Additionally, if the cited employee is also making deferred contributions to a medical reimbursement account, it is my understanding that deferred contributions to medical reimbursement account must be suspended as well. Is this correct??

[KIP KRAUS]

Unless that provision is written in the 401(k) plan, or just happens to be the employer’s policy, I don’t know what FSA contribution suspension would have to do with the 401(k) plan. There certainly is no regulation that I’ve ever heard of that would require suspension of FSA deferrals based on a Hardship Withdrawal from a 401(k)plan. If there is such a reg. it wouldn't be the first time I've seen rediculus legislation.

[SLuskin]

Most of the documents I have seen contain some wording to the effect that if a person's payroll check is insufficient and the deduction cannot be made, it is permissible not to take that one deduction. There is nothing in the change of status rules that I have seen which allows for hardship. There is a big difference between postponing saving for retirement (401K) and the pretaxing of dollars which would be spent in any case. I do not thing this is permissible at all.

[Guest aus10]

I believe that if you are using the safe harbor needs test for hardship withdrawals, then one of the requirements is that contributions to the plan and all other plans of the employer must be stopped for 12 months. "All other plans" includes 125 plans, stock option and stock purchase plans. If your plan is using the general standard for the needs test, there is no requirement to cease deductions for plan contributions.

[KIP KRAUS]

aus10

You may be correct about other retirement and stock purchase plans, but I would argue that 125 plans have no relationship to pension, retirement or stock purchase plans. Our plan document for instance says that the participant must suspend contributions to the 401(k) and all other employer qualified plans. Qualified plans, I don’t believe means 125 plans.

[Guest aus10]

My info cites 1.401(k)-1(d)(2)(iv)(B). Unfortunately I can't bring it up right now to verify or quote it. Is it on point?

[Steve72]

Paragraph (4) of that reg specifically exempts contributions to health and welfare plan that is part of a cafeteria plan from the definition of "all other plans maintained by the employer"

125's are included only to the extent there is a CODA as part of the 125.

[Guest LAWRENCE GROVES]

I appreciate the responses and read the regs.That's why I was asking about the reimbursement accounts.