Using match forfeitures for QNC

[Guest Ella]

We are making a QNC to restore a participant's account. Deferrals were suspended in 1998 due to the 402(g) limit and were not started again in 1999. The error was discovered in 2001.

The QNC will include make up for missed pre-tax deferrals, company match, and earnings.

Can we use our matching forfeitures for this if the plan document says that forfeitures are used to reduce "Company Contributions"?

[Blinky the 3-eyed Fish]

I don't see why not. The end result is that the forfeiture was used to offset a contribution that the employer was going to make anyway, which is the same result if the forfeiture was used to offset an actual profit sharing contribution.

By the way, any thoughts of arguing that an employee deferring at the 402(g) limit should have realized deferrals were not being taken out of his paycheck for the last 2 years?

[Guest Ella]

We argued internally for two months that the employee should have noticed his quarterly statements and his pay advices.

The problem is Rev Pro 2001-17 on Employee Plans Compliance Resolution Sytem. On P.51, #5 in Operational Failures and Corrections - ..Excluding an Employee from Deferrals...., the IRS calls for the total restoration solution. The legal advice to us was that this is where we would ultimately end up if challenged through DOL complaint or IRS audit, etc.

We felt the employee should at least make up the deferrals either in the plan or separately to us but that doesn't leave us in a clean position from the IRS perspective. For the missed 2001 deferrals, we are having the employee to catch-up throughout the remainder of the year. We are providing the additional match each period (we do not have a true-up match.) Our match is 200% of the first 3% so it mounts up.

There is much angst here on this item.