Safe Harbor Match w/ overall benefits package

[Guest MBERISA]

A client has established a benefits structure where a number of benefits are identified and employees can elect what they want. This includes insurance benefits, vacation, and other benefits. The company has setup a safe harbor matching contribution for the 401(k) plan. The intent is that the match is part of the overall benefits package, so if an employee elects to participate in the 401(k), their matching contribution is included in the benefits elections. That means those employees do have to adjust any other benefits to stay within their maximum benefit package. This package was specifically designed to provide the highest level of benefits flexibility since the company is planning for a strong growth phase and they need to be able to attract and keep the best talent.

My 401(k) administrator has indicated this is acceptable as long as we ensure that any employee who elects to participate in the 401(k) receives their matching contribution. What we've setup is that any time an employee submits a 401(k) election form, they also submit a new benefits election form to identify their adjusted benefits.

Does anyone see any issues with this?

[rcline46]

I do not believe that you can make any other benefits subject to participation in a 401(k) plan. In this case, they would be removing other benefits due to voluntary participation. This would/could be viewed as an improper barrier to participation.

I would engage an ERISA attorney to research and give a written opinion on this particular structure. I would say it is problematic.

[QDROphile]

Your 401(k) administrator owes you a much better explanation of how the administrator reached a conclusion that appears to be wrong at an ERISA 101 level. The explanation should start with why the arrangement appears to be a problem, and then provide legitimate support for the conclusion that it is not.

Once that explanation is given, the administrator might then have to give an explanation about why you should not be looking for a replacement. Maybe not. Let us know what happens.

[masteff]

Are you using a 125 Plan for the benefits offering (sure sounds like a cafeteria plan to me)? If so, then your proposed 401(k) election is subject to the same restrictions on changes (ie, annual election, qualified life events, etc) (and only on a prospective basis, unlike, say, a change in medical coverage).

Also, if it's a 125 Plan, then I suspect you need to change your terminology from match to deferral, but I'm not a 125 expert by any means so you really need to talk to your ERISA atty and/or 125 Plan administrator. (The end result is the same, those people who don't use the money toward other benefits can put it into the 401(k); but the Devil's in the details).

Edit: I found one note that says change in family status rules do not apply to 401(k) in a 125 Plan, so you'll really need to get some expert guidance if the company pursues this.