Forfeiture Account Use
Posted 09 March 2004 - 10:31 AM
We have x$ amt in the forfeiture account from 2003 and can use it towards fees or Employer Contributions. I just completed my February Employer Match and would like to allocate the forfeiture funds to cover the Employer Match. However, since we will still have a balance in the forfeiture account afterwards, I'd like to use it again next month when I do the March Employer Match. Is this possible even after the first month or two of 2004 has gone by?
Also, the balance in our forfeiture account contains monies that were from 2002. Would I be able to use those monies for 2004 expenses as well?
Our client manager has given us information, but I'm still not comfortable with everything. I want something in writing from him as to the proper procedures and timelines, and I'm not getting that. it seems this is a gray area
Thank you for your help!
Posted 09 March 2004 - 10:58 AM
All assets of a DC plan must be allocated to a participant account or used to pay plan expenses. You can't have a forfeiture account floating unused from one year to the next. It has to be allocated or it's not a DC plan.
The 2002 forfeitures should have been used in 2003. If you allocate it now, it should be allocated among 2003 participants.
Posted 09 March 2004 - 11:09 AM
Most plans that I administer are able to use forfeitures in the year immediately following the year in which the forfeiture occurred. So, for the 2004 plan year, I would look at the forfeiture account balance as of 12/31/03. If that balance was $5,000 I could use the entire $5,000 any time during the 2004 plan year, which may be $1,000 per month until it is used, or $5,000 all at once. If at the end of the year, a $ amount still has not been used, the document could state that the forfeitures must be allocated to all participants in the plan.
I also have seen plans that require the forfeitures to be held for up to 5 years before they can be used or plans that allow forfeitures to be used as soon as they hit the forfeiture account.
Posted 09 March 2004 - 12:47 PM
I've heard that since these monies that are in the forfeiture account are now the Company's monies, we can use/redirect those funds to other employees to cover for our Employer Match, regardless of their status with the company during that plan year the funds came from.
The last account statement in 2003 I received might include both 2002 and 2003 balances, according to our Client Manager. However, as I mentioned before, I also heard, regardless of the plan years, I can use that money in the forfeiture account in its entirety.
It seems from the answers I've received so far here and by others that the procedures can truly vary. Some are saying the forfeiture account must be used year to year and others are saying that it can be carried over into the following year.
Sorry for the long winded message, but just wanted to provide as much info as possible and make the proper conclusion of what I have to do.
thank you for your help!
Posted 09 March 2004 - 02:09 PM
: "Fofeitures of matching contributions will be allocated to all Participants eligible to share in the matching allocations (regardless of whether a Participant elected any salary reductions) in proportion to each such Participant's Compensation for the year."
The snippet from the plan that you quoted sounds to me like the forfeitures are to be reallocated. Where are you reading that the forfeitures can be used to pay expenses or offset the ER contribution?
Posted 09 March 2004 - 03:13 PM
Posted 09 March 2004 - 04:02 PM
Here is another part of the plan document that I believe is supposed to answer my questions:
"On or before each Anniversary Date any amounts which became Forfeitures may be made available to reinstate previously forfeited account balances of Former Participants, if any, in accordance with Section 3.7(d), used to satisfy any contribution that may be required pursuant to Section 3.5 and/or 6.9, or used to pay any administrative expenses of the Plan. The remaining Forfeitures, if any, shall be treated in accordance with the Adoption Agreement. If no election is made in the Adoption Agreement, any remaining Forfeitures will be used to reduce any future Employer contributions under the Plan.
and here is the kicker that gets me,
"Regardless of the preceeding sentences in the event the allocation of Forfeitures provided herin shall cause the annual additions (as defined in Section 4.4.) to any Participant's Account to exceed the amount allowable by the Code, an adjustment shall be made in accordance with Section 4.5. Except, however, a Participant shall only be eligible to share in the allocations of Forfeitures for the year if the conditions set forth in the Adoption Agreement are satisfied, unless a contributions is required pursuant to Section 4.3(f)."
So, I do thank you for reading my posts and providing some valuable feedback to me. I may not know what I'm doing now, but I hope down the line I can understand this more. I also hope to someday help others with their questions, too!
Posted 09 March 2004 - 05:03 PM
The courts in Herrmann v. E.W. Wylie Corp. and Bouchard v. Crystal Coin Shop, Inc. held that terminating service is not enough to turn unvested benefits into forfeitures. The courts said you also need either a distribution or a break in service. Those cases were decided before Code Section 411 was amended to provide for permanent breaks in service.
Posted 09 March 2004 - 05:14 PM
thanks again. This has been a great help.