Irrevocable Election for Match Only?

[No Name]

Client has an employee who wants to make deferrals but not receive any matching contribution. Now I've heard it all! Seems he wants the current income the match represents.

Reading the regs and this board, it seems an irrevocable election would be required, and would therefore preclude deferrals.

Agreed?

[QDROphile]

The current income in lieu of match statement is troubling apart from your focus on the election issue. Seems like the irrevocable election would not be an election not to receive a match, even if you could craft it that way. There is more going on beneath the surface that is connected with the election.

[Guest Pensions in Paradise]

Why not just amend the plan to exclude Employee X from the matching portion of the plan? Of course, you would still have to include the employee in your testing since he/she is not otherwise excludable.

[g8r]

I think you can have an irrevocable election for just the match. The person would be a non-excludable employee for purposes of running coverage under the 401(m)component of the plan.

Excluding the person from eligibility creates 2 issues. First, you can only exclude someone by name if you pass the ratio % test. For the ABT, excluding someone by name is not a reasonable classification.

The other issue is that the irrevocable opt out is a safe harbor (assuming you comply with the other requirements) so that the IRS won't argue that you have a disguised CODA. If you try to make the election effectively revocable (by excluding the person by name), I think the IRS could argue that you have a disguised CODA if the individual has enough control over the employer to get compensation in lieu of a benefit under the plan. Excluding the person is probably safer than having an outright revocable election, but I don't know that anyone can tell you with certainty that you're safe. And, submitting the plan for a determination letter won't help because the disguised CODA issue is an operational issue not covered by the letter.

[No Name]

This is a section of our plan document, which I think mirrors the regs:

One-time Election Not to Participate. With respect to nonstandardized plans only, and notwithstanding anything contained in the Plan to the contrary, an Employer may elect in the Adoption Agreement to permit an Employee to make an election not to participate in the Plan. The election must:

(a) include plans not yet established;

(b) be for the duration of the Employee's employment with the Employer;

© be a one-time irrevocable election;

(d) be made upon an Employee's commencement of employment with the Employer or upon the Employee's first becoming eligible under any plan of the Employer.

My reading of this seems to be, if you want to elect out of any plan (I'm assuming the match is a disagregated plan of the employer), you must elect out of all plans (the disaggregated 401(k) portion).

[g8r]

I think it's open to interpretation. Literally you are correct - it refers to the "Plan." Whether that term was meant to encompass the component plan concept isn't clear.