401k money is protected by federal law. There should be no one taking tax during the deferal period. I suspect that a huge stink could have been made about this. Your company should have stood on some toes!
It's not company's money, and the company needs to keep good relations with the city, even if the city government is full of crooks and thieves.
Watch them do what North Carolina did. The courts ruled they could not tax military retirement pay after years of battling it out. They were ordered to return the money.
So our beloved state gladly refunded the money, but only for vets who protested the tax at the time they filed their original returns. If you didn’t write a note with your tax return that you were protesting the tax you were SOL.