Voluntary Class Exclusion

[Jessica S]

Can a group of employees who voluntarily choose to irrevocably waive eligibility to participate in the company's 401(k) plan for the duration of their employment be considered an excluded class (assuming they pass coverage)?  Is it acceptable for the company to even allow employees to irrevocably waive 401(k) benefits?  Any thoughts/feedback would be appreciated.  Thanks!  

[ETA Consulting LLC]

They can prior to first becoming eligible.  The key here is a hard-line distinction between merely choosing not to participate and not being eligible to participate (despite any choice).

Good Luck!

[Tom Poje]

As noted, it can't be an 'irrevocable' waiver. I think one of the reasons for this is, for example, you have a profit sharing only plan. for someone to make an irrevocable election is not considered a 'deferral' election whether to participate or not.

I guess you could create an excluded class and amend the document as such, something like "fools that want to be excluded entirely" - well of course you have to have a better description than that.

the difference between someone being excluded from the plan is they don't show on the ADP test with a 0.

but they still get counted as included and not benefitting for coverage.

[Doc Ument]

If the document says no waivers, then you can't have waivers. If it allows waivers , you need to follow its terms. In any event, be careful.  For example, 10 are in this group, but 4 are required for the plan to pass coverage.  How do you determine which 4 to bring in against their will?  How do you draft their waiver to cover that contingency?  I agree that a class exclusion is the way to go - and that can be subsequently amended as needed (e.g., 1.401(a)(4)-11(g)).

[Luke Bailey]

While, as others have pointed out, it might well be better for you to describe the class in your plan document and exclude it without getting individual participation waivers (largely because that could be changed in the future and also would avoid the complexity and potential for disagreement of getting individual written elections not to participate), you specifically asked about employees' electing out. There is case law saying that a plan provision that allows employees to voluntarily elect not to participate does not violate ERISA. Of course, for both tax and ERISA, the provision permitting this must be in your plan document.

The key thing is that the waiver must meet the requirements for a one-time irrevocable waiver under Treas. reg. 1.401(k)-1(a)(2)(v), i.e. must be made prior to any participation, be irrevocable for all employment with the employer, forever, etc. Otherwise you will have an inadvertent CODA (even in a 401(k) plan) and that will disqualify the plan.

Whether you exclude the group by describing it as excluded in your plan document, or go the individual waiver route (which of course some employees might not agree to), all of the employees who would otherwise meet the eligibility requirements of your plan (e.g., age 21 and one year of service), will be counted as part of d your eligible employee universe for purposes of determining whether your plan passes coverage under 410(b).