What constitutes a legally binding Salary Reduction Agreement?

[Guest efringe]

Does an employees intent, and/or discussion with an employers retirement plan representative about increasing her/his voluntary contributions to the plan constitute a legally binding Salary Reduction Agreement?

[MWeddell]

Certainly you'd rather set up more formal procedures than verbal notifications. I'd guess that you're in a situation where after the fact you've got to argue that a verbal discussion constituted a legally enforceable salary reduction agreement.

By analogy to common law, a verbal agreement may constitute a contract. As long as there's an offer, acceptance, and consideration (in this case withholding money in reliance on the employee's election), there can be a contract without it being in writing. Also, Notice 99-1, although addressing a different topic, contains some broad statements about there being no regulatory restrictions on the enrollment method that may tangentially helpful to you.

[This message has been edited by MWeddell (edited 09-01-1999).]

[Guest jdw]

Many states have labor laws that require a written agreement to withold. Although whether those statutes are preempted by ERISA may be an open question (the DOL says they are), it is certainly good practice to document the employee's consent. At a minimum, you save an argument with an examiner from the State's Labor agency.