Annual Deferral Election

[Guest Ken Krol]

I understand that a 401(k) Plan can restrict cash or deferred elections to once per plan year pursuant to 1.401(k)-1(e)(2)(ii).

If a Plan has an annual enrollment period, does this mean a participant who elects a 10% deferral cannot elect a 0% deferral until the next annual enrollment period?

[chc93]

I thought that regardless of when enrollment and changes are allowed, election to stop deferrals (0%) should be allowed at any time.

[Tom Poje]

you mean you have a document that doesn't have language something like this:

Modifications. As of the date a Participant first meets the eligibility requirements of Section 3.01, he may elect to contribute to the Plan. Subsequent to that date, a Participant may elect to start, increase, reduce or totally suspend his elections pursuant to this Section 4.01, effective as of the dates established pursuant to Plan Administrator procedures. Notwithstanding the foregoing, a Participant may totally suspend his elections at any time.

oddly enough, I think the only place in the regs where it is 'required' is in regards to SIMPLE plans (but I have never seen a document not permit one to stop anytime)

1.401(k)-4(d)(2)(iii) Election to terminate. An eligible employee must be permitted to terminate his cash or deferred election at any time. If an employee does terminate his cash or deferred election, the plan is permitted to provide that such employee cannot have elective contributions made under the plan for the remainder of the plan year.

[MWeddell]

It is permissible, although unusual, for a plan document to not allow an employee to change his or her qualified cash or deferred arrangement election other than once per plan year. See Treas. Reg. 1.401(k)-1(e)(2)(ii).

[Guest Ken Krol]

Do you read the regulation to allow a plan to apply the once a year rule to a participant who made an election and now wants to stop contributing before the one year period expires?

[MWeddell]

Yes, I do read the regulation to allow the plan document to provide that the contribution may not be suspended. Definitely read the regulation yourself though, because there is some facts and circumstances language in there that the client should consider.

[Guest A_Dude]

Ken Krol you should check your document carefully. I would suspect that it will allow a participant to stop at anytime. I know our corbel documents are written to even allow the plan sponsor through an admin directive to change this contribution policy should they need to.