Stopping and Starting Deferrals

[Pammie57]

I have a client with a 401k - participants may modify deferrals on entry dates and stop altogether at any time. They can start again on an entry date (quarterly)...

they asked " if a participant does not want deferrals deducted from a certain check (ie vacation , bonus, final check) what do we need to do to accommodate them?"

It is my understanding that they cannot pick and choose a paycheck, and if they stop then they must wait til next entry date to begin again.

Any thoughts on this? They are on a prototype Sungard doc.

[GMK]

It is my understanding that they cannot pick and choose a paycheck, and if they stop then they must wait til next entry date to begin again.

FWIW, this is my understanding as well.

I doubt that a plan can allow participants to pick and choose income types from which deferrals will be made, but even if it's legal and the Plan Doc says OK, it could be an enormous administrative headache that a plan administrator would, in my opinion, be wise to avoid.

[hr for me]

I agree that if they can only restart at re-entry dates, then it doesn't matter why they want to stop a deferral. If they stop one, then they can't defer again until the next entry date. Obviously that won't matter on final checks, since they won't have another check.

Can you make the case that they will lose out on company match if they don't defer this type of compensation? That's usually the best argument to them against stopping and then wanting to restart. They usually don't care about the administrative side (which does leave open a wide span to make errors in re-starting) honestly. That said, I would have them sign a form stating that they understand stopping the deferral on the bonus/vacation check will stop their deferrals until the next entry date.

I'd follow the plan document and just tell them that if they want to stop the deferrals they can but must stop all until the next entry date.

And if there are enough asking (or these are the executive board), you might reconsider the policy as it stands and whether it could be changed through a plan amendment .