I am reallocating 2003 forfeitures to the remaining participants of a plan. However, because I am doing this now, instead of at the end of 2003, I have two participants that terminated in 2004 and took a distribution. They were eligble for the allocation in 2003, but the Plan Sponser would rather not give it to them. With that siad, my question is do I have to reactivate their accounts, deposit the forfeitures and re-surrender? Or can I take their portion and reallocate to the remaining participants. thanks

I would allocate the forfeitures to the participants and then process residual distributions (whether it be to send a check to the participants, or to forfeit the funds back into the forfeiture account to be reallocated with the 2004 $). This is how I have always approached the situation and I think it leaves the cleanest paper trail should a friendly auditor stop by.

The only answer should be to follow the terms of the plan, not just to have a "paper trail."

I would agree that you should always follow the terms of the plan, but I also believe that it is prudent to have extensive documenation to show you are following the terms of the plan; thus requiring a "paper trail"

If the plan requires reallocating forfeitures, and you know a terminated participant (who I am assuming is 0% vested) was entitled to the forfeitures, I believe you should process the reallocation and then process a residual to forfeit the amount necessary. If you do not go through the steps of reallocating and forfeiting, it could appear (to someone just looking at the plan) that you missed eligible participants and did not perform the allocation correctly. Therefore, I would recommend having a "paper trail"

Paper Trail????? Is that when you have toilet paper stuck to your shoe when you leave the restroom?


I agree with FundeK, allocate and then re-forfeit if the participant is 0% vested. Much cleaner. I have seen it done the other way but you need to document pretty clearly to avoid problems and prepare for the auditor. Just easier to go through the motions of allocating it.

Back to the original post. The sponsor (probably) does not get to choose here. Or more generically, has already chosen based on the plan provisions, which will already provide the answer. If it does not, you probably have a defective plan document and may need legal advice.