MERP and opting out for 401(a) contributions

[30Rock]

We have a governmental employer sponsoring a 401(a) plan that also has a MERP (tax advantaged plan under Code Section 105 (it may also be a VEBA). There are veterans (VA) employed who do not need health insurance from this employer. They would like to opt out of employer contributions to this MERP and have the employer contribute instead to their qualified 401(a) account as an "employer" contribution. What are the mechanics to do this, if possible? we can set up the 401(a) plan with separate employee allocations (and there is no IRS non-discrimination testing issues) but how do we go from MERP contribution to 401(a)?  I have asked for the MERP document, but we do not have it yet. Any thoughts or experience from others would be helpful.

Thanks!

[Peter Gulia]

Along with considering what might be feasible plan designs under Federal tax law, research what powers the employer has or lacks under State law. A State’s agency, instrumentality, or political subdivision has no more power than State law provides. With State and local government employers, it often happens that an employee-benefit plan’s design might be feasible under Federal tax law but precluded under State law.

[30Rock]

I am thinking it may be a Section 125 Cafeteria Plan issue - can an employee elect out of MERP coverage and elect for the employer contributions to go to his 401(a) account?