Intereference with ERISA rights

[Guest Sieve]

Does anyone have an opinion whether it might be a potential violation of ERISA Section 510 for an employer to reduce wages $X/hr. once an employee commences participation in the employer's plan? Would it make a difference if the employee agreed to the reduction in an employment agreement?

[jpod]

I have this vague recollection of there being a court decision many years ago involving an employer who reduced pay when it came time for the employees' SEP participation. Even if my recollection is accurate, I don't remember the result in the case!

[J Simmons]

Does anyone have an opinion whether it might be a potential violation of ERISA Section 510 for an employer to reduce wages $X/hr. once an employee commences participation in the employer's plan? Would it make a difference if the employee agreed to the reduction in an employment agreement?

Hi, Larry,

If the employee agreed (other than under duress such as threat of termination) to the reduction, I think that exonerate the employer from a 510 claim. After all, the 401k regs outline an exemption from those regs applying if a one-time, irrevocable election is made by the employee not to be in a plan in exchange for more wages, so that implies a viable option the employer could give the employee to participate in the plan and receive less in wages. Of course, here it is an actual reduction in wages, rather than an increase or the forebearance of an increase due to the cost to the employer of plan participation or not.

The action you describe is not interference with benefits per se, but an act impacting wages. (Well, okay, reduced wages results in less company contributions to the plan if it is a retirement plan, but the savings in wage reduction itself would likely eclipse and make the savings in company contributions to the retirement plan negligible by comparison in most instances.)

In sum, I do not think the scenario you describe should be 510 problematic.

[david rigby]

Any of this discussion relevant?

http://benefitslink.com/boards/index.php?showtopic=13472

[Guest Sieve]

David -- Thanks for pointing me to the earlier string--very helpful in flushing out the issues.

John -- I like your argument about the 401(k) regs. Unfortunately, I don't how much weight a court will give Treas. Regs. in a case under ERISA (especially since the IRS generally takes the position that it is ruling with regard to IRC issues, not issues under provisions of other laws). I agree that a 510 suit is a roll of the dice in this circumstance--I think, though, that it's more likely to succeed than to fail.