Vesting to Use for ACP test failure

[Guest Steve C.]

If I am making refunds today for a 2000 ACP test failure, would I use the vesting as of today or the vesting as of 12/31/00?

Reg. §1.401(m)-1(e)(1) which provides that "[M]atching contributions (and the income allocable to matching contributions) that are not vested (determined without regard to any increase in vesting that may occur after the date of the forfeiture) may also be forfeited to correct excess aggregate contributions."

I interpret this to mean that if the correction is made today, I would need to consider the vested status as of today.

Anyone have a different opinion and a cite for same?

[Tom Poje]

now there is an interesting question. sorry I don't have a cite sitting in front of me, but somewhere buried in my notes is something about the follwoing possibility. (I have a nasty plan I am working on at the moment, so my time is limited from doing a search)

anyway, my understanding is the following:

if ee is 60% then you either

1. forfeit 40% of his balance (which is what you are asking about - except which year to apply)

or

2. no forfeitures, but the following happens.

lets say the HCE has a match balance of 1000.

refund is 100. ee is 60% vested, so in case 1 distribution is 60$ and forfeit $40. In case 2, distribution is the full $100. However, now the ees account balance is $900, he is still 60% vested but his vested balance is not $540 but rather $500, because he received the 'extra $40' as a distribution.

anyway, I have seen this written up as an example. since most HCES are usually 100% vested, you never get into the issue, but anyway, that is my understanding of how the distribution could work. In which case, unless your ee is 0 vested, might eliminate the need to ask your question.