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gle318612

Forfeiture in a defined benefit plan

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In some of our U.S. qualified defined benefit plans, we have forfeiture provisions along the lines of:

In the event that all or any portion of the distribution payable upon a Participant's Mandatory Commencement Date or upon the date that payments must commence under the Plan to a beneficiary cannot be paid because of the Plan Benefits Administrator's inability to locate such person, after diligent efforts to determine such person's location, such person's benefit shall be forfeited and shall be used to reduce the cost of the Plan. In the event that such Participant or beneficiary is subsequently located, such benefit shall be restored, and payment retroactive to the applicable date shall be made.

The above seems to be consistent with Treasury Regulation 1.411(a)-4(a)(6) which I've cut and pasted below:

6) Lost beneficiary; escheat. In the case of a benefit which is

payable, merely because the benefit is forfeitable on account of the

inability to find the participant or beneficiary to whom payment is due,

provided that the plan provides for reinstatement of the benefit if a

claim is made by the participant or beneficiary for the forfeited

benefit. In addition, a benefit which is lost by reason of escheat under

applicable state law is not treated as a forfeiture.

We've never forfeited a benefit but for some participants we've exhausted our internal efforts at finding them (including locator services) and are preparing to use either the IRS or SSA letter forwarding service as our final effort...before declaring such participants as lost. We would not escheat the benefit.

Questions...

If a benefit is declared forfeited, may we 1) remove the participant from PBGC participant rolls, 2) remove the participant's liability from the Plan (and remove the participant from 5500 counts), etc.

Our plans are large and the number and average benefit size of the group that would be forfeited would be relatively immaterial from the perspective of the plan's liability.

I know the DOL doesn't necessarily agree with the IRS/Treasury on forfeiture...but most commentary I've read indicates that since the participant or beneficiary will be paid the benefit if they "pop up later", then...."what's the problem"...

I am just looking for any formal/informal guidance from any regulatory bodies on this topic (other than the Treasury regulation itself) that someone may know of and seek the experience of others who may have forfeiture provisions and actually have forfeited benefits under such provisions.

Thanks for any help.

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If you forfeited them now, but kept records so they if the resurfaced their benefit would be restated, from a participant standpoint there is no harm.

However, from a PBGC standpoint, there may be harm if you aren't paying a premium for that person. After all if the plan terminates, if seems to me as if that person should be added to the missing participant rolls.

So, why not ask the PBGC what they think?

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