Election Not to Participate in DB Plan

[Guest Don N]

Does anyone know if a non-highly compensated employee can opt not to participate in the employer's non-contrib. DB plan; what are the ramifications and is there a regulatory cite; I seem to remember this being asked before but I can't find the thread.

[Guest]

I don't see any problem as long as the plan passed all of the relevant non-discrimination tests 401(a)26, 410(B) & 401(a)4. Keep in mind that even though the participant "waived" participation, they are still counted as "non-excludable"

The question may be why would a NHCE elect out of a non-contributary plan. Short of the employer "convincing" them that they should, I don't know of any reason why they would.

[KJohnson]

Depending on the situation, you don't want this election to be an impermissible CODA. Look at 1.401(k)-1(a)(3)(iv). Election must be made upon first becoming an emloyee or first becoming eligible under the Plan and employee must not have been previously covered by any other plan of the employer. The election must also be irrevocable.

Also, make sure your plan provides for an opt out.

[pjkoehler]

KJohnson raises an interesting point. If the employer in effect conditions its offer to the employee of an increase in pay on the employee's waiver of the right to accrue a benefit under the plan (assuming the plan provides for such a waiver), you could argue that the employee is making a cash or deferred election that, in the absence of the exemption under the special one-time election rule, is a nonqualified CODA. Of course, if the employer simply amends the plan to specify that this employee is ineligible to participate (again assuming this does not threaten the plan's ability to satisfy 401(a)(26), 410(B), etc.), which the employer, as settlor, clearly has the unfettered right to do, then the CODA issue gets a little fuzzy. If the plan doesn't offer the employee the right to waive, but the employer effectively bestows that right on the employee by impliedly conditioning its right to amend on the employee's consent to the amendment, then you could well have the same CODA issue, although this one probably doesn't smell as bad.