Investment Allocation for Forfeitures

[Guest Kelly Igel]

I'd like to hear some opinions or guidance on the preferred investment allocation for forfeitures in a participant-directed plan. As distributions occur throughout the year, should the forfeited monies remain invested in the accounts that they were previously in (i.e., those chosen by the participants), or should they be transferred to a more stable fund?

The reason this question comes to mind - occasionally an employer has a layoff and does not know to advise recordkeeper of partial termination. The employees are paid out their vested amounts - but later the partial termination is discovered and those affected employees need to be made 100% vested and paid the balance. What happens if the forfeited monies have lost value between the time of the first distribution and the second one? Does the employer have to "restore" the forfeited money to its value at the time of the first distribution?

[stephen]

Check your plan document as it should tell you when to forfeit.

[pmacduff]

I don't think Kelly's question was when to forfeit, but what to do with forfeitures throughout the year, created when participants terminate and get paid out. We always put the forfeitures in the Money Market and then reallocate or reduce at plan year end. This avoids the "loss" factor that you mention, Kelly. It seems to me that the partial termination of your example would be the exception and not the rule. Even so, the Money Market fund would afford those forfeitures gains which could be paid to the participants affected by the partial termination.