Timing of the use of Match Forfeiture

[Guest Steve McD]

I have a plan that just came to us. Previously it had a PYE of 8/31 and we took it to a 12/31 with a short plan year in 2001. The document calls for match forfeitures to be used offset match in the next plan year. Due to extreme delays in getting information from the prior recordkeeper, we were unable to complete the 8/31/01 valuation until after the 12/31/01 PYE. When that valuation was completed, we discovered we had match forfeitures that should have been used in the short plan year. My question is does anyone see a problem if we just use them in the 2002 plan year? Do you think there is an issue with overfunding that would require filing a 5330?

[Blinky the 3-eyed Fish]

Your only issue is not complying with the document as written. Therefore, do an amendment and correct the document retroactively. There is no 411(d)(6) issue.

[Mike Preston]

Are you sure this isn't just a timing issue? Let's define the dollars of forfeiture as $F. Let's define the dollars with respect to the match for the 12/31 plan year that were contributed after the end of the plan year as $M. If F

Problems only arise if $M is less than $F. In that case, I'm not sure I agree with Blinky on the ability to use an amendment in the absence of a CAP submission. Especially if the match is in any way discretionary. In that case, the amounts contributed before the end of the year would have to be allocated, wouldn't they? As would the forfeitures? Of course, discretionary matches with language that says forfeitures "reduce" is confusing at best.

[Guest Steve McD]

Thanks for your replies. Total match for the short plan year exceeds the forfeiture dollars so I think there is no problem.

I appreciate your help.

[Blinky the 3-eyed Fish]

Mike, your MF example is correct, unless they have filed their tax return and taken the deduction for the match, which I assumed was the case or there wouldn't be a problem (not considering your last scenario).

You don't think the amendment I recommended would be permissable under APRSC in your last scenario? I can't see why not.

Steve, I don't follow why you don't think you have a problem still. As I see it the plan was operated contrary to how the document reads.

[Guest Steve McD]

My theory is that the amount of the forfeiture was less than the remaining match that needed to be paid at year end so that the Money paid in 2002, instead of being for a 2001 match, would be used for the 2002 match. The forfeiture application had already paid a portion of the money due in 2001.

[Blinky the 3-eyed Fish]

So the entity has not yet filed their tax return, correct? If that is so, then this was a non-issue.

[Mike Preston]

I don't really think it matters whether the entity has filed the tax return. If it has, it was wrong. An amended return is the best way to go.

[Blinky the 3-eyed Fish]

It matters in that you have to correct something, either the tax return or the document. So in summary, I think that matters.

[Mike Preston]

True. But once it becomes the accountant's headache, I'm out of it.

[Blinky the 3-eyed Fish]

I Agree. Let the accountants eat cake.