If an employee stops making contributions to a 401(k) plan while on sabbatical, may the employer stop making contributions during this time also?
Author: Tracy Morley, XpertHR Legal Editor
Yes. Generally, traditional 401(k) plans do not require employer contributions, and employers are allowed to either discontinue or reduce their contribution. Employers generally do this on a plan-wide versus an individual basis. However, the answer may change depending on the type of plan. For example, if a 401(k) plan operates as a safe harbor plan, non-elective contributions may have to be made regardless of whether an employee makes salary deferral contributions to the plan.
Overall, a 401(k) plan must operate in accordance with the plan document, which likely provides specific details on how employer contributions are handled in the event an employee stops making contributions while on sabbatical or another leave of absence.