Forfeitures

[Guest KFLETT]

If under Prop. Reg 1.125-2 Q&A 7(B)(7) forfeitures must be used to pay administrative expenses or allocated pro-rata to employees and the employer opts to have the funds go back to the employees, can the employees apply these funds to any claims they have towards the 125 or do they receive a lump sum check? How are these dollars handled administatively?

Thanks

[papogi]

I would give the employees checks. This way, you are not fiddling with potentially carefully thought out annual election amounts. You used the word "must", which the regs don't use. Forfeitures don't have to be treated as 125-2 spells out, but it does tell you some ways forfeitures cannot be treated.

[Guest KFLETT]

So you recommend paying out the forfeitures to participants if they are being redistributed in the Plan?

[papogi]

Check out the below threads. They address your questions, and, since I am the one answering, they show my point of view (although you may find differing ideas):

http://benefitslink.com/boards/index.php?showtopic=14348

http://benefitslink.com/boards/index.php?showtopic=15553

http://benefitslink.com/boards/index.php?showtopic=15456