Settlement agreement calls for no company contribution

Legal settlement agreement calls for (among many things) no company contribution to a (now) former employee and plan participant. Covers what would have been a short plan year for the former employee. The employee did make some 401(k) contributions, and would be eligible for safe harbor plus profit sharing company contributions.

Simple question - can this be done?

Does the "legal settlement" differ from plan provisions?  If so, does that mean the plan should (must?) be amended to remove any conflict?  Can it be amended without violating any safe harbor requirements?  Can it be amended without violating any non-discrimination issues?

One part of the answer I cannot give you in full is that one needs to look at plan terms and make sure whatever is done ultimate is consistent with plan  terms, especially compensation definitions, taking into account any proper elections. I realize I am begging the question with respect to some of the question(s). Part of that exercise includes determining the tax characterization of amounts received from the employer in the year under the settlement agreement and otherwise in the same year. For example, does the settlement provide for an amount with respect to back pay?

Consider whether the settlement agreement might be wholly or partly void, voidable (by one or more of its parties), legally enforceable, or unenforceable.

Consider whether the settlement agreement might be effective or ineffective regarding the retirement plan.

Consider whether the settlement agreement might be a plan amendment. (As one aspect of this, consider whether the settlement agreement’s signer also might have had authority under the plan’s governing documents to amend the plan.)

Consider whether, if a safe-harbor contribution is not allocated to the participant’s account, a consequence might be that the plan loses whichever safe-harbor relief relates to that contribution.

If you’re a service provider, consider how to get the plan administrator’s proper instruction that protects the service provider.

This is not advice to anyone.

Thanks!

I think you'd have to know the nature of the complaint and the basis for the settlement. If (as seems unlikely) the settlement said, "Yeah, you were employed for X period and we should have been paying you all that time," then there would be a basis for saying the plaintiff was an employee entitled to plan benefits. But if it said, "We disagree with your allegation that you were wrongfully terminated, but we're going to throw $20k at you anyway to get you and your lawyer to go away, and because of the IRS rules we'll put it on a W-2," then I would question whether you wouldn't just follow the specific agreement of the parties that there should be no plan contribution.