Assignment of Income Problem

[Guest dkl2214]

Question to consider:

A business manager is planning to redirect a portion of employees' hourly contributions from their money purchase pension plan (deferred taxation) to a supplemental unemployment benefit (SUB) (non-taxed) fund. I think this is permissible as long as he keeps some money flowing into the money purchase plan. However, he would still like to give his members some options which include:

1. Whether the plan could offer members the option to select a small percentage of salary to the SUB plan and the remainder of the contribution to the MPPP; and

2. Whether the plan could offer members the option to select a certain percentage of salary into the SUB plan on an annual basis.

My initial reaction is that this will create an assignment of income problem for the employer and plan. I remember the IRS has taken the position that if an employee is given the choice between health (or some other non-taxable plan) benefits and a contribution to a 401(a) plan, the employee is taxable under the assignment of income doctrine. Thus, it seems the above two mentioned options will incur this assignment of income problem. Has anyone else run across anything like this? I was trying to find some concrete research on this and was having problems. Any input is greatly appreciated!