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Re-allocation


PS
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Terminating plans with forfeiture balance - there are couple of terminating plans with small balance in the forfeiture account ( example: $ 500 or $1000), the plan sponsor don't have any invoice hence the only option they are left with is to re-allocate to the eligible participants.  The plan sponsor is required to determine the eligible participants for which they will require to refer the plan document, however since the $ amount is less they just don't want to do this and they end up re-allocating the funds equally or on a pro-rata base to the ones who were active during the plan termination.  Now this leads to testing failure.  How can this be avoided is there any exception on the re-allocation, so that they don't fail the testing. 

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6 hours ago, PS said:

what are the other option of re-allocating?

I'm not sure what you are getting at. If you can't use the forfeiture to off set reasonable administrative expenses (assuming the document allows) then you need to allocate them in accordance with the terms of the plan document in a non-discriminatory manner. You don't an IRS "free pass" to do it however you like because the plan is terminating or the forfeitures are small. I get the client doesn't want to pay you to do the reallocation but don't make their problem your problem by doing it wrong.

Is there a large enough forfeiture account balance to pay your fees to do the reallocation correctly and allocate the remainder to participants according to the Plan document? That might make everyone reasonable happy depending on your point of view.

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