Employment conditions

[Belgarath]

I'm drawing a blank on this - it seems to me that I recall that an employer may not make employment conditional upon waiving participation in a qualified plan. But I'm not sure why I think that - is it true? If not, was it ever true, and got changed? It's bugging me, and I can't find anything addressing this specifically. (Even if permissible, it wouldn't work for long as they would fail coverage testing at some point.)

Thanks!

[Locust]

How would that be different than just excluding them as a class? I think the plan would have to meet the same conditions for excluding a class - not an arbitrary classification.

[ERISAnut]

I agree. An employer could make mandatory aftertax contributions to a DB plan a condition for employment. But to make someone opt out of the plan as a condition of employment would seem to constitute a failure to enforce the employees rights under the plan (without plan language defining an excludable group in which the employee is a member of).

Reminds me of the good ol' days.

[Guest mjb]

Where is the illegality in requiring a waiver of participation as a contractual condition of employment? Its no different than requiring the employee to submit all employment disputes to binding arbitration instead of a lawsuit. ERISA does not prevent waivers. However, a waiver of participation does not allow the employer to exclude the employee from being counted in the denominator of the 410b calculation which could result in discriminatory coverage. See Rev. Rul 80-351. Plan must have a provision that permits wavier of participation.

[Guest Pensions in Paradise]

If the plan is a 401(k), could this be viewed as a violation of the contingent benefit rule under 401(k)(4)(A)?

[Locust]

I still think it would have to meet the rules for exclusions of classes of employees. This is not really a waiver, but an exclusion - the "employees" don't really have the opportunity to waive because it is a condition of employment.

Also, I think you get into other discrimination issues - what if you don't hire an older person unless he or she waive participations in your defined benefit plan? Great if it works, but it's [probably discriminatory.

Employers would like to have complete discretion as to who cover, but the rules as I understand them require that the plan provide some objective standard for determining who is covered. An involuntary waiver of participation is not an objective standard, but an arbitrary one, in my view.

[Guest mjb]

Under ERISA 202(a)(4) an employer can exclude any employee from the eligible class except for reasons that violate the age or service provisons.

[Locust]

I don't think that ERISA 202(a)(4) tells the whole story.

You also have to have a plan document that establishes rights of employees, and to the extent that participation requirements, vesting, or benefits are within the discretion of the employer and not established by the plan, I (my opinion) do not think that requirement is met.

I've heard of plans that excluded employees by name or Social Securty #, and (rumor or example) by the color of their eyes. That doesn't seem right to me, but I've "heard" that some plans have determination letters saying it is ok.

But it would be a little different if the plan said something like: "all employees may participate, other than those that the Human Resources director decides, in his or her own discretion, should not be benefits eligible." MJB - do you think such a plan provision would be ok? Doesn't such a provision take the eligibility standards completely out of the concept of "plan"?

[Guest mjb]

What is wrong with a plan provision that makes all employees eligible to participate after attaining age 21 if they have one year of service except those employees who waive the right to participate in the plan. Plan does not define conditions under which employee will be reqired to waive participation

As a condition of employment some employees elect to waive participation in the plan.

[rcline46]

I see veiled age discrimination issue in hiring, or I see a coerced waiver of benefits. I don't think it flies, and if under audit, the IRS or DoL speaks to those who waived...... Well I would not want to be in the employer's shoes.

This should get a written opinion from both a labor and ERISA attorney.

[namealreadyinuse]

It definitely could work. This BIG issue I'll bet is whether they are geting additional compensation in return (that would be a CODA, wouldn't it?). Practically, isn't that the only reason someone would do it?

[Guest mjb]

There was no mention of discrimination being applied in the the post- I dont understand what is a coerced waiver of benefits - the employee either accepts the position with a waiver or rejects it for whatever reasons, salary, hours of employment, etc. There is no coercion because the employee can decline to accept the terms of employment and look for another job. Some employees will waive benefits for a higher rate of pay which is not illegal. I dont know what basis the IRS or DOL will want to speak to persons who wavied and are not the subject of the audit- Rev Rul 80-351 expressly permits waivers of participation and under ERISA benefits are not required to be provided to all employees.

[rcline46]

ERISA certainly permits a voluntary waiver of benefits by employees. Now lets say prior to hire I agree to waive benefits, which I cannot do until after I become an employee. Once hired, I now refuse to sign the waiver. If I am then fired, I file suit under 510 (I think this is the section) - dismissal in order to avoid providing benefits. Its a slam dunk the employer loses. Of course I have the papers from the employer stating that they require I waive benefits.

Now if the employer will not put into writing that they require me to waive benefits in order to become employed, then they obviously realize they are in the wrong.

OTOH, if I am hired as a Senior Bench Warmer, and that is an excluded class I might still have a beef under ADEA if all of the Senior Bench Warmers are over 40. But it is a much harder proof.

Bottom line, it is not a VOLUNTARY waiver. I have a bunch of attorneys who will take the employees case.

[Guest mjb]

The completed waiver would be a condition of the offer of employment along with completion of W-4, I-9 and an employment application. If any of the documents are not completed, no offer. If all the documents are completed the waiver applies when the employee shows up for first day of work.

[ERISAnut]

This becomes an issue of "effective availability" as opposed to "current availability." You can write a document to say anything (i.e. you may opt out of the plan). This is a current availability issue in that the option to participate has been given the participant opted out. But to write this language and then "require" an employee to opt out as a condition of employment would mean the plan is not "effectively available" to that employee.

So, if you're going to endure all of this, why not simply have the plan written to exclude the employee you want to exclude? What is being accomplished by a mandatory waiver (except a misguided perception of security)?

[ERISAnut]

There was no mention of discrimination being applied in the the post- I dont understand what is a coerced waiver of benefits - the employee either accepts the position with a waiver or rejects it for whatever reasons, salary, hours of employment, etc. There is no coercion because the employee can decline to accept the terms of employment and look for another job. Some employees will waive benefits for a higher rate of pay which is not illegal. I dont know what basis the IRS or DOL will want to speak to persons who wavied and are not the subject of the audit- Rev Rul 80-351 expressly permits waivers of participation and under ERISA benefits are not required to be provided to all employees.

Waiving participation for a higher salary? Sounds like a deemed CODA to me.

[Guest mjb]

Enut: I thought that effective availability of a feature (waiver) cannot discriminate in favor of HCES (persons who were paid over 100k in 2005 according to IR 2005-120). How does a waiver discriminate in favor of HCEs merely because some/all employees who utilize the fature are nhces?

[WDIK]

After following this thread for a while, I'm not sure I see any reason to draw scrutiny (whether deserved or not) by trying to obtain a waiver of participation from a prospective employee when the plan language can be drafted to achieve the desired result.

[Guest mjb]

WDIK: While I dont disagree in theory with what you have stated there is the administrative burden of preparing an amendment every time a employee is to be excluded. It also seems be a rather convoluted way of achieving the same result that a waiver would provide. Why should it be permissible to exclude an employee by a plan amendment but not by allowing a waiver which is permitted under rev rul 80-351?

[WDIK]

mjb - Your position certainly seems reasonable, and I have no basis to either dispute or support it. I merely suggested the approach that seemed certain to accomplish the desired result.

As my pragmatic grandfather WDIG used to say, "Better the devil you know than the devil you don't."

[Jim Norman]

I agree with WDIK. Plan amendment is the way to go. The waiver is asking for trouble under IRS deemed CODA theory, and making the offer contingent on employment comes dangerously close to raising ERISA 510 issues.

[Mike Preston]

I agree with WDIK. Plan amendment is the way to go. The waiver is asking for trouble under IRS deemed CODA theory, and making the offer contingent on employment comes dangerously close to raising ERISA 510 issues.

Jim, stop being logical. IAWWDIK&JN

[Jim Norman]

Jim, stop being logical. IAWWDIK&JN

Sorry, guess I'll have to go back to being paranoid!

[Belgarath]

The reason I asked this was due to a question which was, of course, purely hypothetical. Suppose a business sponsors a plan with a 1 year of service eligibility requirement. They neglect to inform the TPA that they have a batch of part time employees, going back for years, that they never bothered to report on the certified census. Some of these people worked over 1,000 hours. Plan population is such that they easily pass coverage without including these folks. Further suppose that the attorneys for the business determine that the employment contract that these employees sign is worded such that it constitutes a waiver of participation in the plan. That was the hypothetical scenario.

I just wanted to see what folks thought about this subject, and I appreciate your comments.

[WDIK]

Belgarath:

How can you justify putting forth a hypothetical with such dubious suppositions as

1) an employer failing to provide complete and accurate information; and

2) attorneys liberally interpreting a document to the benefit of their client?

Fortunately this is something none of us should ever have to deal with.

[rcline46]

This SCREAMS for EPCRS. If this were true, the client would have to get a written legal opinion from the attorneys as to why EPCRS is not necessary WITH an indemnification for all costs including contributions should they be wrong.

[Guest mjb]

I am somewhat amazed at the responses to B's inquiry. Clients routinely ask counsel to interpret plan documents/employment agreements as to eligibility of employees to participate in a plan. In a case like this the attorney could limit the review to whether the employee wavied the right to participate in the plan and let the client apply the wavier to determine the plan participation numbers given to the administrators, without a need to render any opinion that EPCRS is not necessary. Client can rely on the attorney's opinion that waiver was valid under state law to exclude employee from plan.

Waivers of participation are quite common and courts have enforced wavier provisions in retirement plans against employees, e.g., Captial Cities, Inc. v. Ratcliff, 141 F3d 1405: "Plan shall not include an individual who is hired pursuant to an employment agreement or personal services agreement if such agreement provides that such individual shall not be eligible to participate in the plan".

[rcline46]

mjb - I am ashamed of you! Capital Cities is not about waivers! In reading the decision the court specifically stated that a waiver was not involved in this case, because the contract specifically denied participation in the ERISA plans. The contracts made the Carriers independent contractors, and even the IRS TAM attempting to make some Carriers common law employees was retracted.

Also note that the plans specifically stated that Eligible Employees did not include anyone who signed a contract which specifically denied the signees right to be in the plan.

Although on point for the discussion (plan level exclusion which we like), it does not involve waivers.

[Guest mjb]

You must be reading a different case. What the court said was " We agree with the district court and the Star that there was no issue here of the waiver of an existing right to receive benefits. Because the Agency Agreements were signed pror to the commencment of the carrier's work they were simply executory contracts containing an agreement that, inter alia, the Carriers would receive no benefits. Thus the question of the voluntariness of a waiver of existing rights is irrevalent." I did not refer to a waiver of existing rights to benefits- my statement was that a waiver of the right to participate in the plan was permitted under Captial Cities. This decision confirms my earlier post that an employee can waive the right to participate in a plan prior to the commencmeent of employment.

In addition Rev. rul 80-351 states "on the day after a plan was adopted a secretary signed a statement waiving all rights to participate in the plan" and "This discrimination was not eliminated by the low-paid employee's waiver of the right to receive benefits." Clearly it is understood that an individual can waive the right to future benefits under a plan.

There are diffent types of waviers of rights including a waiver of the right to existing benefits, a waiver any claim to additional benefits as well as a waiver of the right to participate in the plan and receive future benefits. All of them are waivers of some right by the individual.

[rcline46]

" employer may not make employment conditional upon waiving participation in a qualified plan."

This is the original Statement. Capital Cities was clearly about NOT being an employee, but an independent contractor. The IRS tried to make them employees, and therefore eligible for benefits. Therefore the case.

So the contract merely stated as independent contractors they were not eligible for benefits. I see no waiver of any kind in this case as is posited in the opening statement.

I DO agree it affirms the right of a plan to exclude a class of employees which I think we all agree is the best way to go.