Employer has agreed to give each "field" employee an annual

[MWeddell]

I guess the employer figures the office employees aren't about to unionize, eh?

Besides the fact that the plan design seems intended to tick off office employees and field employees who did contribute, I'd be concerned that it violates the contingent benefit rule in the 401(k) regulations. Treas. Reg. 1.401(k)-1(e)(6)(i).

The employer also has issues about whether the amount exceeds employees' IRA limits and (considering they are eligible for a 401(k) plan) whether employees make deduct IRA contributions. The employer might also convert the IRAs into an ERISA plan (there's some DOL guidance that addresses what the borderline is).

Not a great idea, all in all.

[SMB]

Employer sponsors a 401(k) Plan with a match of 50% on deferrals up to 3% of compensation. Employees are classified as either "office" or "field". In an effort to avoid unionization of the "field" employees, employer has agreed to give each "field" employee an annual "bonus" equal to 3% of pay - reduced by any match for "field" ees participating in the 401(k) - to be deposited directly into an IRA in the employee's name.

Not my client (nor am I getting involved other than this posting!), but was curious as to any comments our learned readers might have...

[Dowist]

I think there's also an argument that the "matching" contributions are really elective contributions. Assuming that employees know that the matching contributions will result in a reduction of their compensation (and I think therer would be a huge problem if that wasn't clear and employees later found out about the policy), in a sense they are making an election to reduce their compensation by the amount of the "matching" contributions. As elective contributions, the "matching" contributions would be subject to the 402(g) limits, they would have to be 100% vested, and they would all have to be tested under the ADP test.