Pre-funding a forfeitures account!

[Guest JPAdmin]

Here's a good quiz for all pension people!

I have a client whose plan is handled elsewhere. Their current TPA firm indicated they could pre-fund by placing monies into the forfeiture account, and take the deduction on the prior years return. Then they would allocate the monies during the current year. (Wrong?)

I know that all monies should be allocated at the end of every year. Is that the issue here, besides the fact the monies are not forfeitures?

Can anyone point out the 70's ruling indicating monies should be allocated? Thanks so much; have fun researching this one!!

[Kirk Maldonado]

Revenue Ruling 80-155, 1980-1 C.B. 84.

[IRC401]

I suspect that you don't have the correct explanation of the idea and that the idea works as follows:

The plan year is changed to Dec 30.

On Dec 31 the employer deposits a sum of money for the 12/31-12/30 plan year that just began and deducts it for the tax year that ends on that date. The actual allocation need not be made until the end of the plan year (the following Dec. 30), although there would be a faster allocation requirement if 401(k) money were involved.

This idea was dealt with by the IRS in (a very poorly reasoned) Rev. Rul 90-105 and is currently #1 on the Treasury's list of abusive tax shelters.

I happen to believe that the idea works if the contribution is actually deposited but not if it is accrued. Deloitte was pushing this idea (until the Tax Shelter list came out?)

[Guest JPAdmin]

Thanks to all who responded. Based on the data provided I could track down an explainiation that was satisfactory to the client. I sure appreciate your help!