A money purchase plan can be amended into a profit sharing plan. When this is done, there is a potential for reversion to the employer if full vesting is not applied. Specificaly, if the plan provides for the employer to use the forfeitures to reduce contributions, and full vesting is not applied, a reversion will occur.

If a money purchase plan is first amended to allocate forfeitures to avoid this reversion issue, and participants continue to earn vesting credit under the same schedule in the profit sharing plan, do these dollars retain their money purchase character after forfeiutre. For example, if an employee later has a forfeiture of $2,000, and this is to reallocated to eligible participants under the plan, is this $2,000 reallocated still as a money purchase type of money, subject to the distribution restrictions, or does this money lose its money purchase distinction when the participant forfeits it. If it does not have to be retained as money purchase, it could be added to other forfeitures from profit sharing or match, and allocated as one. If it retains its money purchase character, then I will continue to allocate these money purchase forfeitures until the last 100% vested participant finally leaves the plan. Any experience with this type of situation? Thanks.

Wouldn't the forfeitures be reallocated to the same people and in the same amounts whether or not the forfeitures retain their money purchase character?

If so, is the question whether you have to apply the annuity rules and in-service distribution restrictions to those forfeitures?

Yes, the allocation amount would be the same regardless. I just don't know if I have to continue to track this money purchase money separate from the profit sharing money due to the annuity rules, or if the character of the funds being money purchase funds is lost once the first participant forfeits the money.