Participant doesn't want to lose Medicaid benefits, plan is Safe Harbor

Someone in one of our plans receives Medicaid payments as he has Down Syndrome.  We were informed her benefits would be ceased if his retirement account balance exceeds $2,000. He was auto-enrolled and had a few  deferrals, but it's only amounted to about 200 bucks.

The deferrals have been stopped, but the plan is a 3% safe harbor plan.  This year, it won't probably push him over $2k, but next year probably will.

Is there a way to have him excluded from any Employer contribution so he doesn't lose his Medicaid benefit?

I assume you mean without firing him? I'm not sure there are good options at this point for the Plan even though it stinks for the participant. "Here's a $1,000 for safe harbor, oh by the way it's going to cost you $12K in medicaid benefits annually". Which kind of seems screwed up on may levels.

Did they remove the restriction on hardship distributions from safe harbor sources? If so can he take hardships to cover medical costs and drain his account?

Can the plan be amended to have an excluded class of employee of which he is in the excluded class? I'm not sure this works in a safe harbor 401(k) but I think it is OK if you pass coverage. Probably doesn't help though until 2020 as he's already eligible in 2019 and the amendment cutting his benefits would be prohibited.

Hardship really isn't gonna cut it.  There's no way enough 401(k) + SH + gains is going to make up for the loss of the Medicaid benefits.

I will look into excluding him via a class exclusion.

The other thought was to pay him on a 1099 but that is a whole host of other issues, so I doubt I'll even bring that up.

No you misunderstand I was  thinking of him taking a hardship to reduce his plan balance under $2,000 to keep medicaid and using that to pay medical bills which he probably has at least a few not fully covered by medicaid. No?

Even if you can come up with an exclusion that only keeps him out, and doesn't exclude anyone else who should otherwise benefit and will now get shafted, is there any possibility that such a move will trigger some Medicare fraud thing, or violate the ADA, or something crazy like that? I have no idea whatsoever - I just wondered...

What an unfortunate situation. Keep us posted if you can find a way around it.

17 hours ago, Lou S. said:

No you misunderstand I was  thinking of him taking a hardship to reduce his plan balance under $2,000 to keep medicaid and using that to pay medical bills which he probably has at least a few not fully covered by medicaid. No?

This might be an option.

On 6/4/2019 at 2:23 PM, BG5150 said:

Someone in one of our plans receives Medicaid payments as he has Down Syndrome.  We were informed her benefits would be ceased if his retirement account balance exceeds $2,000. 

No Medicaid expert, but I thought eligibility is related to income ("modified adjusted gross income").  Are you (or the employee or the employee's guardian) sure that eligibility can be affected by assets in a qualified plan?

Edit 01/13/2020:  I learned that yes the eligibility can be affected by assets in a qualified plan.

I know nothing about it, but this might be helpful as a starting point.

https://www.medicaidplanningassistance.org/medicaid-eligibility-401k-ira

I have heard of people disclaiming their plan account in order to avoid this situation.  That might be something worth looking into.  The document might determine who will receive the account if it is disclaimed by the participant, I'm not sure on that.  

I believe we are going to exclude him starting in 2020.  Maybe by name or job classification.

Could I maybe exclude participants whose "participation in this Plan may jeopardize Medicaid benefits under state law"?

I doubt that is "a reasonable job classification" and I think excluding NHCEs by name can be problematic but I'm not 100% certain on that. I think you may need to find a workaround like "widget makers are excluded" where he just happens to be the only widget maker employed by the company.

The business is a fast-food restaurant, so I'm hoping they can create something.

Another thought was to exclude anyone hired between say August 3 and August 5 2015 (where his hire date is 8/4/15).

Name is a last resort.  I don't want his name in the SPD.  (Who really looks at that, though?)