Forfeiture Suspense Account for Matching Contributions

[Guest blaum8]

I'm working a prototype plan that provides that forfeitures of matching contributions are used to reduce employer matching contributions. Employer matching contributions are discretionary. As a result, there are unallocated forfeitures just sitting there.

Questions: What are the non-discrimination testing issues related to this suspense account? Are there any limitations on how long the funds may remain in suspense. Does any formal guidance exist concerning treatment of suspense accounts for matching contributions?

The concern, of course, is that the longer these sit there, the more likely they will end up being allocated to HCE's and owners, resulting in discriminatory operation of the plan. TIA for any thoughts.

[Mike Preston]

Interesting. Most plans would declare a contribution equal to the forfeiture in order to eliminate the suspense account. Are you sure that your plan specifically authorizessuch a suspense account? I have seen at least one prototype that does so, but most don't have clear language on this issue. In the absence of such clear language I've heard that most advisors recommend not maintaining such a suspense account, and, instead, declaring a discretionary match at least to the extent of the forfeitures.

[Guest blaum8]

It's a Franklin Templeton plan. The adoption agreement has a box which would permit what you suggest, but unfortunately, that's not the box checked. It provides: "used to reduce the employer's matching contribution". Does no good when there isn't one.

[Mike Preston]

This is my day to make suggestions regarding the plan document. Hopefully, you won't find it condesceding, as somebody did earlier today. But, have you read the document? Not the adoption agreement. The plan document. Somewhere, buried in there, might be a provision that says what is really supposed to happen. For example, in one document I know (not the adoption agreement) it says quite clearly that a forfeiture suspense account shall be established and maintained as long as the plan sponsor does not declare a discretionary match.