Change in election amount

[Guest Nini]

Is a 401(k) plan legally required to allow participants to cease deferrals at any time?

Cites are appreciated - thanks.

[JanetM]

Normally this is function of record keeper/payroll abilities. If the participant was auto enrolled they must have option to cease at any time.

[masteff]

And there's the rare case of a 401(k) with a section 125, in which case the section 125 restrictions apply.

[QDROphile]

The law does not impose annual elections on a 401(k) plan that is run through a cafeteria plan, but the plan might. As a practical matter, the plan might have to impose an annual election with respect to employer credits available for the 401(k) plan, but not with respect to salary reduction.

[masteff]

The law does not impose annual elections on a 401(k) plan that is run through a cafeteria plan, but the plan might. As a practical matter, the plan might have to impose an annual election with respect to employer credits available for the 401(k) plan, but not with respect to salary reduction.

Interesting, thanks for the comment. That differs from my CCH book but it wouldn't be the first time that they were close but not quite on target.

[John Feldt ERPA CPC QPA]

Not to my knowledge. I find nothing that requires a 401(k) plan to allow employees to stop their deferrals at any time. The 2004 final regulations provide that a 401(k) plan must provide employees with an effective opportunity to make or change their cash or deferred election at least once each plan year. See Treasury Regulation §1.401(k)-1(e)(2)(ii).

However, after the employees receive the Safe Harbor notice for a Safe Harbor 401(k) plan, the plan must provide employees a reasonable opportunity (includes a reasonable period of time) to make or change a cash or deferred election for the plan year, a 30-day period is deemed to be a reasonable period.

[Sully]

Not sure if it is a requirement of a prototype document, but it seems all of the prototype documents I have worked with have allowed for the participants to cease their contributions at any time.

[John Feldt ERPA CPC QPA]

Our prototypes and volume submitter documents are through a major provider. This provider offers two prototype versions. The version that we subscribe to does not require the plan to allow a participant to revoke at any time (it's not in the adoption agreement nor in the basic document). Instead, it is an administrative election (which is not part of the plan document).

All (but one) of our clients allow revocation at any time. I'm not sure why the one chose the way they did years ago, but they only allow deferrals to be revoked at the end of June and at the end of December.