MP merged to PS - forfeiture allocations different - which governs?

[Cathy from Chicago]

MP had five-year cliff vesting, with forfeitures used to reduce contribution.

MP merged into PS this year.

PS plan has forfeitures reallocated on same basis as 401(a).

In 2002 there will be forfeitures due to terminations of many non-vested employees. In order for the forfeitures to be used to reduce, does the PS plan have to be amended due to the merger? Has this situation come up with anyone else yet?

Please advise. Thanks.

[Mike Preston]

To the extent that unallocated forfeitures existed in the MP prior to the date that the MP was merged into the PS, those monies are allocated under the terms of the PS plan, as the continuing plan post-merger. I think the IRS was asked this question at the ASPA conference in October.

[Cathy from Chicago]

Thanks, Michael, for your response. Based on it, it appears then that the forfeitures that will occur this Plan Year (2002) will be reallocated at the end of the Plan Year unless we amend the PS plan from having forfeitures reallocated to reducing the contribution, right?

[Mike Preston]

Sounds right. However, unless the PS plan has a specific formula, there is effectively no difference between the two.