We have a max accrural on vacation time, and someone has recently suggested that we can allow the employees who are about to lose hours of vacation time, to contribute that to the 401(k) Plan instead.

Fact about the plan I think you should know- 401(k) Plan is management only, all others are subject to CBA.

I know under a cafeteria plan you can buy and sell vacation time, however, you if you are going to allow employees to transfer unused $$'s to the 401(k) you have to also offer a cash out.

If we offer the option to transfer at risk vacation hours to the 401(k) would we have to offer that as a cash-out as well?

Thanks for any advice and or guidance links.

Same issue. A 401(k) plan is a CODA (cash OR deferred arrangement).

There are several plrs where the IRS allowed plans to permit terminating employees to elect to have excess vacation time that would be forfeited if not used to be transferred to a qulaified retirement plan before sepration from service. The key is that the ee could not elect a lump sum cash out. In otherwords the employee's choices would be limited to forfeitieng the excess, transferring it to the Q plan or using it before termination. This is a very popular option in govt where PS plans were set up exclusivley for vacation payments. I believe the IRS position now requires that there be other contributions to the plan. In a private plan the contributions have to meet the BRF provisions which will usually require that it be limited to nhces.