401(k) plans

Our company has recently hired a new, part-time, non-exempt employee. Though, as a part-time employee, he is not eligible for any of the benefits the company offers - if he manages to maintaim a minimum of 1,000 hours worked per year, he would be entitled to contribute to our 401(k) plan. He has asked, however, if it would be possible for us to take pre-tax dollars from his paychecks and forward it to a different 401(k) plan that he currently contributes to. My first question is, obviously, can we do this, from a legal stand-point? My second is whether or not we should. My feeling is that, were it okay, it would nonetheless not be in our best interest to do so, as we would then have to extend the same option to all employees, creating a funding nightmare for both the HR and Accounting departments. Any and all helpful responses would be extremely appreciated ...


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  • You can't, and don't, want to do that. The reason you can't is that neither your plan, nor the plan he is in at his other employer, should allow this. The plan documents should specify the company (or companies in some cases)that are covered by the plan. These are the only companies whose employees can contribute to the plan. (I'm assuming your company and the other company he works for are not related in any way other than this common employee.)

    You actually want this employee to contribute to your 401(k) Plan is because of non-discrimination testing. Assuming he's not a highly compensated employee, and assuming you cover some HCEs in your plan, his contribution can make the difference as to whether you pass your ADP/ACP testing or not.

    There are probably even more issues involved, those are the first things that come to mind. The bottom line is -- the plan document(s) govern.
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