There is no reason that would stop a project from offering a 401(k) plan to site employees.  However, if it is for the owners, then it would be a problem.  Here is the actual guidance for this type of a plan.

e. Retirement Accounts for Front-Line Staff

1. Funding of retirement accounts for front-line staff can be paid out of a project’s operating account. Retirement accounts for an agent’s central office staff may be paid only out of the management fee.
2. HUD will allow employer contributions to retirement accounts for front-line staff to be paid out of project funds if the following requirements are satisfied.
   1. The retirement account plan complies with all applicable federal, state, and local laws and regulations governing such programs.
   2. Only permanent, front-line employees who work full-time at the project (i.e., more than 30 hours per week) may participate. Off-site employees and temporary or part-time on-site employees are not eligible. Also, rotating employees working at more than one project are not eligible unless they qualify as a full-time employee at one project.
   3. The projected cost of employer contributions to be paid out of project funds may not exceed five percent of the base pay of eligible employees.
   4. A reasonable portion of the employer contribution will vest relatively early in an employee’s tenure with the company. Generally, employees should be 100 percent vested within five years.
   5. Employees must remain 100 percent vested for all personal contributions to their account.
   6. The actual cost of administering the retirement account plan will be prorated to the projects.
   7. No commingling of employee accounts may occur.
   8. The plan must be managed by a qualified outside entity with an established history of handling such programs.
   9. Agents will make modifications to the plan as necessary to comply with changes in the laws and regulations governing such programs.

From: AHACPA Support <support@ahacpa.org>
Sent: Wednesday, September 18, 2019 2:05 PM
To: les@ahacpa.org
Subject: Retirement Plans [NEW]