3

Can my employer require:

  1. That I make my salary deferral election at the beginning of the fiscal year
  2. That once I make my selection, I cannot change it unless there is a life event (baby, marriage, hardship, etc)
  3. That once I make my selection, I can only "downgrade" it and NOT "upgrade it"
3
  • There are IRS section 125 rules that dictate what an employee/employer is allowed to do in order to receive the tax benefits that come with a payroll deducted contribution to a benefits plan. I'm not sure off the top of my head if payroll deducted 401k contributions are subject to those restrictions but what you describe are in line with the Section 125 rules.
    – quid
    Nov 22 '16 at 20:13
  • @quid - I'm pretty sure 401k plans are not considered cafeteria plans (125) because cafeteria items are excluded from income, whereas even traditional 401k plans are still subject to FICA. (And furthermore Roth 401k are fully after tax.)
    – TTT
    Nov 22 '16 at 21:00
  • @TTT And come to think of it I can change my 401K contribution at any point in the year for no reason.
    – quid
    Nov 22 '16 at 22:15
2

The IRS stipulates a 401K plan (both traditional and roth) must allow everyone the opportunity (and the ability) to change their election at least once per year.

I currently cannot find any rules beyond that, so if additional rules don't exist, then my interpration is that #1 and #2 would be fine. I'm not sure which context you mean for #3; if you are asking if the employer can prevent you from increasing your election amount at the next designated election window, then the answer is NO, that is unfair. But if you are asking if they can allow you to decrease it whenever you want, but only increase it once per year during the election period (or perhaps also after a life changing event), then I think that would be OK.

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