Can a plan administrator legally make changes to an employee's deferra

[Guest lkramer]

We are eliminating the option for a flat dollar election, and requesting that everyone change to a percentage. If they have been notified of this change and been given an opportunity to change to a percent of their choosing, can we go in to their account and make a blanket change to 1% for all who have a flat dollar election?

[david rigby]

What does the plan say?

[Dave Baker]

Seems like you could do that, if you follow the kinds of procedures that would apply to a "negative election" ("we're going to reduce your pay and apply the salary reduction as a contribution on your behalf unless you tell us otherwise").

I guess you'd want to look at the kinds of safeguards the IRS required for such negative elections -- advance notice, opportunity to opt out, etc. -- and then put it in writing, making sure the plan document either is amended to contain these terms or that it has some provision for administrative "procedures" that aren't inconsistent with anything in the plan document.

[Guest pineapple]

Pax asked the key question - what does the plan document say?

When you state that you are eliminating the option for the flat dollar election, I assume you mean the plan document has been amended to remove that provision. If that is the case, then any participant who has not made a % election has not made a valid election (i.e., if they still elect a flat dollar amount, their election is invalid under the terms of the plan).

The only correct recourse is to notify the participants that if they do not change their election to a %, they will be deemed to have made no election to contribute.

[Guest JCatt]

Rather than change everyone's deferral percentage to 1%, could you approximate the corresponding percentage that their current flat dollar figure would equal? It would be a bit of extra work, but would save grief from p/p's who will invariably realize nine months from now that their contribution amounts have decreased.

(Assuming they are deferring more than 1% of their salaries. If they aren't, why bother having a plan?)

- Joe.

[david rigby]

You may be able to do some approximation, but that is an administrative action that might be in conflict with the plan document. If the document does not permit flat $ elections, then that is not valid. Defaulting to 1% might be pretty harsh for some. Is it possible that some flat $ elections are close to 3% for example? Does the plan have a 1% default for negative elections?

Is correcting this a burden?