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Forfeitures from a DC plan to fund a DB plan of the same ER


AdKu

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Thanks John!

 

If the DC plan document has the following provision:

1.1 Forfeitures and Their Application

. The following provisions relate to Forfeitures and their application:

 (a)           When Forfeitures Occur. The date upon which a Forfeiture occurs is the earlier of the date a Participant who Terminated Employment receives a distribution of the Vested Interest in his or her Participant's Account, or the date the Participant incurs five consecutive Breaks in Vesting Service after Termination of Employment. If a Participant's Vested Interest in his or her Participant's Account balance is zero on the date he or she Terminates Employment, the Participant will be deemed to have received a distribution of such Vested Interest on the date of termination and a Forfeiture will be deemed to have occurred on the date of such termination. 

 

Is this permissible to not contribution the Zero percent vested participants' portion of the non-elective contribution who were in the nondiscrimination test with allocation?

How about contributing only the vested portion of the non-elective contribution for those with a below 100% vested plan participants?

The goal is to reduce the amount that the client has to write a check to fund the DB/DC plan to the extent that the regulation allows to use the forfeitures account balance.

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The DB plan's minimum funding requirements are only met by employer contributions to the DB plan.

Forfeitures of any participants' DC account balances can be used within the DC plan according to the DC plan's written terms for such use, which may include allocating as a nonelective or as an offset to the employer's contribution to the DC plan, or for plan expenses. Thus, the forfeiture may very well end up as being counted toward helping satisfy the minimum gateway requirements if allocated or offset.

One possible exception to all of this, which I have not researched and have never get involved with, is a the plan described under Internal Revenue Code Section 414(x). However, even there I doubt the forfeitures of the DC portion of the plan are counted like contributions toward minimum funding for the DB side. Plus it's very unlikely you truly are looking at a 414(x) plan.

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I have never seen a document that would permit this

"Is this permissible to not contribution the Zero percent vested participants' portion of the non-elective contribution who were in the nondiscrimination test with allocation?"

your document says the contribution will be based, for example, comp to comp, not comp to comp excluding your nonvested portion.

and no exceptions made for terminated participants. sorry.

so you get the odd scenario, the person receives a contribution and turns around and forfeits.

I'm sure the document also says if the terminee returns his balance will be restored using forfeitures, but if the $ were never put in the first place, then he never put forfeitures in the plan in the first place. in addition, for example, you gave him $1000 contribution to pass testing, then turn around and say I'm not going to put it in the plan because he is 0 vested, but I am still using it to pass testing.

 

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