Weird ER request re: PS contribution-NEED HELP!

[t.haley]

ER sponsors PS plan with discretionary PS contribution based on uniform allocation formula. ER is switching to a high deductible health plan and wants to ease the burden on ees by offering them an election to have any PS contribution contributed to the ee's HSA account (up to applicable limits). Can the ER do this? Would an ee that makes this election be "treated as" receiving an allocation under the PS plan (see 1.401(a)(4)-2©(ii))? I think it is a bad idea but need something more to convince the ER. Thanks!

[Lou S.]

You would no longer have a uniform allocation in your PS plan which would persumably blow the written terms of your plan document.

[Effen]

You might be able to do it using a "one-time" election, but you would need to general test the ultimate result. You could create groups of participants that receive different PS allocations based on a one-time election. New hires would be given the election upon hire. Once they are in a group, they would not be allowed to change (at least not very often). I have seen plans that use this methodology and permit changes every 5 years or so. Something they should talk with their ERISA attorney about.

Seems to me it could work, but you would have to be careful about discrim testing and potential CODA issues.