Refusal to participate in DC plan (maybe religous reasons?)

[BG5150]

There is a participant in a DC plan who adamantly refuses to have neither an employee nor an employer account.  This may have to do with religious reasons against interest bearing accounts. The plan is not top heavy, but it is a 3% SHNEC.

He did not sign a waiver prior to becoming eligible in the plan.

Has anyone encountered this?  How did you resolve it?

We were toying with an amendment:  All employees hired in November 2015 are ineligible to participate in the plan.  He is the only EE hired in that time-frame.

 

[Lou S.]

Put him in the default investment, problem solved.

[ESOP Guy]

If you are going to amend (not endorsing or objecting to the idea) the plan why not make it more generic and long term useful? 

Something like the plan excludes any employee who certifies they have a religious objection to the plan? 

Maybe getting a waiver is the same thing. 

Just guessing but if there is one such person there might be a community of them in the employer's area.  The objection might come across as off beat but typically they congregate at a place of worship and not come up with the objection on their own.  I would add if it is an objection to interest one of the world's largest religions has that as a core belief. 

[BG5150]

25 minutes ago, Lou S. said:

Put him in the default investment, problem solved.

The default investment will have some sort of earnings akin to interest.

[Lou S.]

Tell them to donate it to charity when they leave the company, after talking to their accountant of course.

[XTitan]

I suppose an automated withdrawal before the amounts accrue interest would be wrong.  Yeah, there's an additional 10% tax but it's additional compensation and even after all taxes it's still appositive amount.

[jpod]

Even though it is a SHNEC, can't you amend the plan to make EMPLOYEE'S NAMEkick this employee out,  

[jpod]

Sorry for hitting submit too soon.  Even though it is a SHNEC, can't you amend the plan to make EMPLOYEE'S NAME ineligible prospectively?  Assuming you can, then that is a basis for discussion, but under no circumstances should you pay or offer to pay additional cash in lieu of plan contributions.  By the way, we have looked at this and concluded that there is no requirement under Title VII to accommodate the employee in this scenario, but if you wish to do so and the qualification rules don't get in the way you can do it.

[david rigby]

I'll take a different approach: do nothing.  The EE does not get to decide what benefit plan(s) are offered by the ER.  Whether or not the objection is based on religious grounds, the existence of an account INSIDE THE PLAN does not cause him (or anyone else) any harm (IMHO).

If he doesn't want it, he doesn't have to take it when he severs employment.

[ESOP Guy]

49 minutes ago, david rigby said:

I'll take a different approach: do nothing.  The EE does not get to decide what benefit plan(s) are offered by the ER.  Whether or not the objection is based on religious grounds, the existence of an account INSIDE THE PLAN does not cause him (or anyone else) any harm (IMHO).

If he doesn't want it, he doesn't have to take it when he severs employment.

It isn't obvious that the employer can do nothing.  Most employment law requires "reasonable accommodations" of religious beliefs.   I am assuming this is what Jpod is referring to when he says Title VII doesn't apply that he is saying either those rules don't apply here or this isn't a reasonable request.  But it is dangerous to just dismiss this out of hand as the employer gets to decide end of story. 

Let me be clear here I am NOT an expert on this part of the law so it very well maybe you either don't need to accommodate the person with ERISA plans for some reason or asking a plan to amend so it carves you out is not a reasonable accommodation.  I am merely pointing out you have to ask those kinds of questions.  

[Lou S.]

I would have a hard time seeing any US court rule that opening a retirement account for employee under terms of the Plan is a violation of their religious beliefs but maybe I'm crazy.

What if you do exclude him or have him irrevocably opt out and the Plan fails coverage, what then?

 

[Kevin C]

It could be something other than religious reasons.  There are some government programs that you become ineligible for if you accumulate more than a certain level of assets in a retirement plan. 

[Below Ground]

I had a similar problem quite a few years ago.  What we did was just setup an account for the person and deposited money to the default investment, after telling the person this was just part of his pay.  Since the employee was not being forced to put anything in, we told that person that he was losing nothing.  If he wanted to ignore that he was being given this money under the Plan, then that was his choice.  Once we made that clear that literally nothing was required of the person the issue literally just sort of died.  Since there has yet to be a payment to that person, there has been nothing further on this "problem" since the original setup. 

In this case the issue was that the person thought this was just some way that the firm was scamming money from him.  (The firm's relationship with labor was rather poor at that time.  It is now much better.)  Since there was no religious or "identity politics issue" involved, the solution of just putting the money in after saying there is no cost to you, worked just fine.  May I suggest that your first step be toward finding out exactly why this person has a problem.  Until then I don't see what else you can do other than put the money in for compliance purposes, but be ready to adjust to account for the underlying reason.  Maybe setup the account as a trustee managed account without reference to the person?  Of course, "internal plan records" would identify who the monies are held for.

[BG5150]

1) I'm not positive this is for religious reasons.  The person has a Middle eastern-sounding name, and I am putting it forth as a possible reason.

2) Just noticed my plan document has a provision that there CANNOT be any irrevocable waivers anymore (though older ones may be enforced).

[jpod]

Assuming there is a religious discrimination issue in the first place, the employer's obligation is to make a reasonable accommodation.  In our analysis, we concluded that there could not possibly be an issue requiring any accommodation (at least under the law in effect at the time of our analysis, 2 or 3 years ago).  By the way, to the extent relevant, there are mutual funds available for 401k platforms that hold themselves out as being Sharia-compliant.  

[Patricia Neal Jensen]

I agree with David Rigby.  Employees do not have to "agree" to have accounts set up for them in DC plans with employer nonelective contributions.  The problem comes when s/he terminates.  Hopefully, the cashout provisions will permit rolling this out to an IRA.

I had an employee eligible for a plan with a 3 to 1 match once who refused to sign up for the plan because he  didn't want the government to "find" him.  We all tried valiantly to explain that if they were looking, they had already found him but alas!  He walked away from this wonderful match. 

[jpod]

An employer may not wish to ignore complaints grounded in good faith religious beliefs, even if it could ignore them without any legal risks.  Employers have many more HR concerns than simply what is legal and what isn't.  The point being if an employer can respond to a good faith religious objection to the employee's satisfaction without placing the plan's qualified status at risk, and without over-complicating plan administration, the employer may wish to hear some ideas.     

[Luke Bailey]

I'm not sure about this at all, but you might be able to exclude him by amendment no matter what the plan doc says prior to the amendment, and even going back to retro years, under 42 U.S. Code Chapter 21B - RELIGIOUS FREEDOM RESTORATION Act. The current Supreme Court has been pretty aggressive in enforcing this. If you amended your plan to exclude him (assuming that's really what he wants and he gives you what appears to you to be a bona fide religious reason for it), I think this federal law might overrule an IRS claim that the plan was disqualified. Just something for your lawyer to look at.

[JamesK]

I hate to even jump in here, but I would be worried about this participant reneging on the back end and creating even more expensive problems then.  IMHO, this is purely spiteful in the hopes of making problems for the employer down the road.  I would simply find a Sharia-compliant investment for this person and put any allocations into that investment. 

Retirement plans are unilateral contracts.  In that sense the employee is in the same boat as everyone else employed by the company.  If you decide to exclude this individual from plan participation, have the employee set down his or her reasons in writing so that the plan administrator can evaluate his or her claim to be excluded and get legal advice.  Document the decision thoroughly and get the employee to sign off as well. 

Claims of religious discrimination or infringement on religious freedoms seem ... dubious.  Especially if there are compliant funds (be they Catholic, Lutheran, Ba'hai, or Sunni) that will address the concerns.

[MoJo]

15 hours ago, jpod said:

An employer may not wish to ignore complaints grounded in good faith religious beliefs, even if it could ignore them without any legal risks.  Employers have many more HR concerns than simply what is legal and what isn't.  The point being if an employer can respond to a good faith religious objection to the employee's satisfaction without placing the plan's qualified status at risk, and without over-complicating plan administration, the employer may wish to hear some ideas.     

I would agree that there may be "bigger" HR concerns, but I would *always* advise a client to *only* do that which is required by statute - whether it be a RFRA type act, or any other statute.  To do *more* is *always* setting a precedent and inviting trouble in deciding that which is appropriate, in vastly variable circumstances.

As far as the plan is concerned - one cannot make an employee "actively" participate, but an employee cannot prevent the employer from following the terms of the plan and setting up an account and funding it.  I would *not* recommend an amendment to exclude the participant.  That is going above and beyond and sets that precedent, with potential downstream consequences.

Deal with the termination distribution when it occurs....

[Tom Poje]

I assume most documents have the following clause

Section 7.08 MISSING PAYEE

If all or any portion of the distribution payable to a Participant or Beneficiary remains unpaid because the Plan Administrator has been unable to ascertain the whereabouts of the Participant or Beneficiary after making reasonable efforts to contact the Participant or Beneficiary (which may include, but not be limited to, sending a registered letter, return receipt requested, to the last known address of such Participant or Beneficiary; using the Social Security Administration letter forwarding service; and/or a commercial locating service) the Plan Administrator may use a reasonable method to remove the assets from the Plan that is consistent with ERISA and the Code. Such methods may include, but not be limited to, (a) creating an individual retirement plan designated by the Plan Administrator; or (b) if, for a period of more than five years after such distribution becomes payable or six months after all attempts to locate the Participant or Beneficiary, the Plan Administrator is still unable to ascertain the whereabouts of the Participant or Beneficiary, the amount so distributable may be treated as a forfeiture under Article 6 hereof.

so, I guess after he quits and 'can't be located'  go ahead and forfeit the $.

[JamesK]

@Luke Bailey  A very quick look at RFRA tells me that it applies only to government action.  The employment relationship IMO would not fit within the scope of the Act. 

There may however be other employment laws that require accommodation, but still it's hard to see how a purely financial benefit would require accommodation.  Truly it is an interesting, quirky question at the intersection of pension and employment law and religious liberty. 

[Luke Bailey]

JamesK, I agree with you regarding the requirement for government action, but the employer can amend the plan to exclude the individual, retroactively, have the individual sign an ostensibly binding agreement, etc. My point was that if the IRS then said, "Hey, that is inconsistent with the way we interpret 401(a)," the employer could use the RFRA as a defense.

[stephen]

From the Cornell HR Review

The Right to Religious Accommodations in Pension Plans

JULY 21, 2012 by BEVERLY MORAN

Quote

Thus, the Human Resources Director we encountered at the beginning of this article should consider that religious accommodation in pension investing is an even greater right than the headgear and jewelry that his company allows. 

Above is one attorney's take on the matter.

[david rigby]

FWIW, nothing on point in the Gray Book.

[MoJo]

8 minutes ago, stephen said:

From the Cornell HR Review

The Right to Religious Accommodations in Pension Plans

JULY 21, 2012 by BEVERLY MORAN

Above is one attorney's take on the matter.

I think the provision you quote presumes that the employee in questions is an active participant AND has the right to direct their assets within the plan.  Nothing says you must give them that right, and I would go even further and suggest nothing says accommodating ONE (or a handful) of those with specific religious beliefs that affect a plans investment operations is more important than the fiduciary obligation to select investments appropriate for the totality of participants.

[MoJo]

51 minutes ago, Luke Bailey said:

JamesK, I agree with you regarding the requirement for government action, but the employer can amend the plan to exclude the individual, retroactively, have the individual sign an ostensibly binding agreement, etc. My point was that if the IRS then said, "Hey, that is inconsistent with the way we interpret 401(a)," the employer could use the RFRA as a defense.

Luke:  Can you explain your apparent preference for an amendment as an accommodation?  Truly it solves the problem of one or very few people who have a particular belief system - but the impact to the employer is: 1) they have to make a determination that the belief fits those protected under the appropriate RFRA type legislation (hey, I happen to subscribe to a sincerely held native american holistic religious doctrine that allows the use of peyote at my pleasure - but that doesn't mean my employer has to accommodate (and I am kidding here - but there is a real case on that point); 2) if enough people are excluded, you may have numbers/testing issue; and 3) why is "exclusion" a necessary accommodation (the mere fact that an account in the plan exists does NOT in any way interfere with the free exercise of any religion - only taking advantage of the benefit or the investments *might* - and the employee can refuse a distribution when available to "accommodate" that part of their belief structure).

I still think less is more in these cases.  Comply with the requirements (if it applies to an employer at all), but only minimally so as to comply - else you go down that slippery slope....

[JamesK]

This thread has been a good learning experience.  @MoJo raised a good question about the fiduciary's responsibility with respect to the portfolio.  If the fiduciary determines that it is required to provide a Sharia-compliant investment, then perhaps it would be required to provide a Sharia-compliant portfolio of investments.  Otherwise, it would run the risk of breaching its fiduciary duties.  

I'm not sure I found the Cornell HR Review article particularly compelling since the author didn't delve into the ERISA issues, but after reading this thread I have to admit that the possibility has to be considered. 

[ESOP Guy]

5 hours ago, MoJo said:

 3) why is "exclusion" a necessary accommodation (the mere fact that an account in the plan exists does NOT in any way interfere with the free exercise of any religion - only taking advantage of the benefit or the investments *might* - and the employee can refuse a distribution when available to "accommodate" that part of their belief structure).

 

You are one of several people who has made a version of this point in this thread and I don't get it.  I mean how are you qualified to know if this interferes or not in the free exercise of their religion?  If this person thinks there is an ethical issue with being a participant in the plan in what way are you qualified to say otherwise?  If the plan puts the person into an unethical position that in my mind is an interference in their free exercise of their religion. 

Let me be clear I am not saying their belief has to be accommodated in this case as it might be unreasonable or for some other reason.  If so, then that person can decide if they need to find a new job or not.

I merely find it interesting how many people on this board seem to think their qualified to tell another person how their religion works. 

[MoJo]

9 hours ago, ESOP Guy said:

You are one of several people who has made a version of this point in this thread and I don't get it.  I mean how are you qualified to know if this interferes or not in the free exercise of their religion?  If this person thinks there is an ethical issue with being a participant in the plan in what way are you qualified to say otherwise?  If the plan puts the person into an unethical position that in my mind is an interference in their free exercise of their religion. 

Let me be clear I am not saying their belief has to be accommodated in this case as it might be unreasonable or for some other reason.  If so, then that person can decide if they need to find a new job or not.

I merely find it interesting how many people on this board seem to think their qualified to tell another person how their religion works. 

This has nothing to do with "how one's religion works."  It has everything to do with what the law might require another to do to accommodate someone else's religion.  Quite simply - no one's religiosity can in any way, shape of form, obligate another another to take any specific affirmative action if that affirmative action materially affects the other.  Religious freedom in the employment context simply means the employer must accommodate the exercise of religion by the person claiming to have that right - but it does NOT obligate the employer to take any other affirmative steps to make changes outside of the "personal performance" of the individuals religious practice.  That is, an employer *might* have to accommodate prayer BY THE INDIVIDUAL, but nothing would compel the employer to shut down machinery so the individual can pray in silence - as may be required by the individual's religious beliefs.  Nothing in RFRA type laws would require an employer to change the schedule of a time critical operation to make such an accommodation (e.g. if a smelting operation is pouring molten steel out of a blast furnace/ladle - the employer would NOT have to suspend those operation so that one of the necessary workers can perform a required religious ritual).  Religious freedom does not compel such affirmative action when it comes to an employer having to do something that impacts the potential operation, if not qualification of a plan.  It isn't "religious freedom" - it's coercion.  If the person truly objects to being a passive participant - find another job.  RFRA does not give one the ability to dictate "affirmative" actions" on the part of another, or to cause some other problem to the employer (and possibly the other employees).

[Bird]

On 3/16/2018 at 3:55 PM, Lou S. said:

Put him in the default investment, problem solved.

I'm having a hard time understanding why this thread continued beyond this post.

[Luke Bailey]

MoJo, I really have no preference. I was just pointing out a possible way to go. BTW, it was worth the length of this thread just to see that someone had actually written a law review article on the topic. Sooner or later, you see everything.

[Carol V. Calhoun]

I would talk to him about this.  If it is for religious reasons, perhaps one of the sharia-compliant investment funds would work for him?  Or you could just amend the plan to let anyone with a religious objection waive participation.  After all, it saves the employer money to keep him out of the plan.  Why force the issue, if he isn't demanding higher wages in exchange for the waiver?

[david rigby]

The original questioner included a statement (after the original post),

Quote

"The person has a Middle eastern-sounding name..."

Others have used that vague phrase to jump to "sharia-compliant", etc.  Probably not a good idea to assume anything in this area before gathering more information; it might have nothing to do with Islam, etc.

[jpod]

I can only speak for myself but I was merely making a suggestion that may be useful to the OP should he inquire further, rather than simply ignoring the employee or refusing to even discuss the matter with the employee as others have suggested.