They Can, it is called a prevailing wage plan, and if they did not have that stipulation you would be making that much less. They get a tax credit for having tha plan and the funds going into it. Government contracts and contruction companies, unions, etc often have this built into their pay system. It is not uncommon and perfectly legal. You get some money put away for retirement and it does get adjusted off your gross income on your w-2.

They may be required to offer a 401k plan to employees, but I've certainly never seen it be mandatory you contribute if you don't opt in, much less a mandatory 1/3 of your pay. There are actually limits of how many pretax dollars can be deferred to a 401k yearly: for 2010, that is $16,500.

I'm thinking they'd like to get out of the payroll taxes on the contribution portion.... I'd call your state dept of labor and wages and ask them if this is a legitimate contractual stipulation for a prevailing wage job. I suppose it could be, regardless of how strange it appears.

It is not considered an employee contribution, stranger even so... WHen put into the plan these funds are CONSIDERED EMPLOYER contributions... it is part of the contract and considered more of a benefit than a portion of the wage...

LOL... I'm doing it wrong then... OP, what kind of work do you do? I may need to consider a mid life career change.

I work for a benefit ;plan adminstator. We handle all participant questions - distributions, and yearly reconciliation and reporting.. accounting stuff... interesting and very busy if you are into that kind of thing... THe laws and different options available through the different plans are vast and it keeps you on your toes... always changing... 403B;s are a whole new ball game, and constantly developing.. There is definate job security, and the pay isn't bad for a consultant... Look into getting your QKA (qualified 401k administrator.. ) It will make you worth much more....

Good to know. I've been more accounting/corp finance, I'll have to look into it. Thanks!