Can the sponsor temporarily suspend withholding 401(k) deferrals during times of economic uncertainty?

Until a participant requests a change in the rate or complete discontinuance of salary deferral, employers should continue withholding according to the election in place. If a plan limits the frequency of deferral changes, it can be amended to make them more frequent. Many plans allow participants to completely stop making deferrals even when changes are allowed less frequently and, in most states, “wage” laws require the ability of an employee to immediately stop salary reductions.

Generally, plan documents charge the plan sponsor, the employer, to establish procedures for making deferral changes. That may allow the flexibility to accept change requests from employees by some means such as email rather than a web portal or a salary deferral election form.  While flexibility is important to facilitate changes, it is just as critical to maintain documentation to support deferral change requests. Plan sponsors need to communicate such changes to procedures and make them available to all participants.

Cetera Retirement Plan Specialists is a third-party administrator and may not offer tax, legal or investment advice. Plan sponsors should consult their own tax, legal or investment professionals.