Suspension of 401(k) contributions

[Guest Giovanni]

I have a client that wants to discontinue allowing their employees to contribute to the plan. I've never had this situation before. Would it be ok to just amend the plan to change the max deferral % to 0% or should all reference to 401(k) in the plan be removed? In the future, they may want to allow the employees to contribute again.

[MJ Hartman]

I would have a resolution prepared by the employer authorizing/notifiying the plan trustees of the cessation of payroll deferrals being paid to the plan as of a specific date. A letter should be provided to each participant notifying them that there will be no 401k deferrals being paid to the plan as of this date (a reason why they are stopping deferrals would also be good).

If they ever want to start deferrals into the plan again they should do the above procedures that would allow the start up of deferrals as authorized by the employer. It might be helpful if there was another re-enrollment form required so employees have the right to decide if they want to start deferring again.