Elective Deferrals

[Nassau]

My client has a participant who was recently in an accident and is in an unconscious state in intensive care. He does not have a POA for his wife, nor can he sign a form or call the Recordkeeper to elect his deferrals to be suspended.

The participant is currently receiving disability and the client would like to suspend his payroll deferral. Can the plan suspend the his payroll deferrals under these circumstances without his consent? Thanks.

[12AX7]

I'm not sure where you would find guidance on this situation. I would perhaps get an authorization from the wife to cease the deductions. The authorization may also contain language to release the plan administrator of any 401 (k) withholding obligations to the participant during the cessation period based on this special election. Perhaps one of the attorneys on the board can suggest a way to do this.

[jpod]

I'm kinda confused. Is he or is he not still receiving compensation eligible for deferral? I guess he must be, or the question wouldn't be asked, but you mention "on disability," and I don't know why you mentioned it unless it was pertinent to the 401k issue. Assuming he is still receiving eligible compensation, come on now, let's be real. If the wife wants the deferrals stopped, and if the employer/plan administrator is satisfied that the employee cannot act for himself, and if the plan permits suspensions at any time and also permits re-starting at any time (i.e., if the employee should suddenly regain his powers), I say "DO IT." No way IRS would disqualify the plan for this. Can I cite anything to support that? Absolutely not. Seriously, my advice to the client would be that there isn't any clear support in the law or IRS guidance for doing it, but the risk to the plan is probably non-existant just because there is no abuse here and IRS is not looking to punish employers, plans, or employees covered by plans when employers take action in good faith to deal with extraordinary situations not addressed in the law or regulations.

[12AX7]

If Third Party disability pay was showing on the W-2 and the plan was using a definition of comp that includes these amounts, then technically withholding does apply. This is perhaps getting a little off-point, but demonstrates that withholding could occur under these circumstances.