Forfeitures - timing?

[Chippy]

A participant terminated during 2017 with 700 hours, he is 0% vested.  

  He is eligible for a profit sharing contribution for 2017.   Forfeitures are reallocated the same as the contribution.    

Document says forfeitures occur in the year they are paid their vested balance.    

Since this participant is entitled to a contribution and forfeiture reallocation for 2017, does he also forfeit his balance during 2017?    

I'm thinking his balance should be forfeited in 2018.    

[Kevin C]

It should be somewhere in the document.  Our VS base document has a default provision in the forfeiture section saying that if a participant is being deemed as cashed out (because they have a zero vested balance) and they receive additional allocations for the year of termination, the deemed cashout (and forfeiture) happens on the first day of the next plan year.  The adoption agreement has an option to change this to have the forfeiture happen without regard to whether the participant is entitled to an additional allocation.

[ESOP Guy]

Kevin is correct you need to read the document.

Although I have had a surprising large number of plan documents that cause an infinite loop in this fact pattern. 

The document says the person gets a contribution.

They get a forfeiture allocation same as a contribution. 

They get a deemed distribution upon termination or end of the year they terminate.

So the newly given contribution and forfeiture allocation creates a need for a new forfeiture allocation as the funds in their account are forfeited. 

This person would share in any such forfeiture allocation.  This gives them a new balance that is forfeited and needs reallocation which they share in....... infinite loop is here. 

I find we just have to cut this off at some point and say these types of people don't share in the forfeiture allocation. 

Then in the long run you amend the plan to say either:

1) Any one who forfeitures in the current year doesn't share in the current forfeiture allocation  This allows the person to share in the current contribution which sets their balance in case they get rehired and need to be restored.   However, it allows you to then forfeit them allocate the forfeitures and they have a zero balance. 

2) Anyone who is eligible for a cont or forfeiture allocation in the current year doesn't forfeit until the year after they are elig for that allocation.   Everyone else forfeits in the current year. This should stop an infinite loop.  It just means some people forfeit one year later then their termination while so do forfeit in the year of their termination. 

There maybe other ways to break the infinite loop with the amendment.  But in the year you find such a loop it is often times too late to amend the plan so you simply have to decide how to deal with it.  I always favor giving the problem to the attorney who wrote the document (ESOPs are always attorney drafted) and didn't think of this problem while writing the document.    They made the problem they can come up with the fix.  They tend to ask me what I think and I say the above.  They agree to the above.