PLAN MAN

Under the provisions of a standardized prototype plan document, any participant who terminated during the plan year with more than 500 hours is entitled to receive an allocation of the employer contribution. If forfeitures are allocated in the same manner as the employer contribution, the terminated participant with more than 500 hours would also receive an allocation of forfeitures. Forfeitues must be allocated in a nondiscriminatory manner.

According to my notes from a seminar by Pension Publications of Denver, Inc., for purposes of applying the 15% deduction limit the employer should determine which employees are participating in the plan by using the rules to determine "benefiting under the plan" in the regulations under Section 410(B). At the seminar we where told an employee who is eligible to make salary deferrals under a 401(k) plan is participating in the plan for purposes of applying the 15% deduction limit, even though the employee does not make a deferral during the plan year. The IRS should update the deduction regulations to make it clear.