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QACA Match and Forfeitures


30Rock

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If I have a QACA plan using a 2 year cliff vesting schedule, can I apply forfeitures to reduce the QACA matching contribution? I know the IRS position on not using forfeitures to fund vested contributions because the forfeitures are from non-vested amounts when a participant terminates employment. Thus for QNEC's and traditional safe harbor plans that require 100% vesting, you should not use forfeitures to fund the safe harbor (based on the terms of the document -ie some EGTRRA pre approved plans allowed this are are ok until the PPA document is used.

Thanks for any insight!

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2011 ASPPA Conference Q and A 21
What is the status of the IRS' position on using forfeitures to fund safe harbor 401(k)
contributions? Does the IRS continue to make a distinction between funding safe harbor
contributions under 401(k)(12), where the contributions must be 100% vested, and safe harbor
contributions under 401(k)(13), where a 2-year vesting period may apply? Does the same
analysis apply to QNECs?

IRS response. The IRS believes that safe harbor contributions under IRC section 401(k)(12) are required to be
nonforfeitable when made to the plan. This is because Treas. Reg. section 1.401(k)-3 refers to safe harbor
nonelective contributions as qualified nonelective contributions and to safe harbor matching contributions as qualified
matching contributions, and Treas. Reg. section 1.401(k)-6, in defining those terms, requires that such contributions
meet the nonforfeitability requirement at the time contributed to the plan. A forfeiture used to fund such a contribution
would fail to meet this requirement, because it is attributable to a contribution that was not forfeitable when
contributed to the plan. The IRS takes a different position with safe harbor contributions under a qualified automatic
contribution arrangement (QACA), pursuant to IRC section 401(k)(13), because such contributions do not have to be
nonforfeitable at the time they are contributed

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