What are the rules of a "vacation buy" plan?

[Guest CBoudjouk]

I've just started working with a company that is in the process of implementing a "Purchase Time Off" plan. I've only been exposed to a similar plan one other time & I'm a little concerned about compliance.

I have 2 questions:

1) As currently proposed, the plan allows participants to discontinue their election at any time & be refunded for any contributions made that haven't been used. Isn't this a violation of salary reduction rules (i.e., Section 125)? Aren't the participants obligated to continue contributing for the entire plan year?

2) If an employee terminates after having used the time, but before enough deductions have been taken to cover the cost of the time, payroll will automatically deduct to recover the overpayment from the employee's final paycheck. In most states, signatures are required at the time for non-recurring deductions. Is a signature on the enrollment form good enough to support recovery?

Thanks!