Forfeitures to reduce plan expenses?

[Guest mattman]

A plan sponsor discontinued making matching contributions a couple years ago. Can the match forfeitures now be used to reduce plan expenses? The plan document states that match forfeitures are used to reduce future matching contributions, but really doesn't address this issue.

[KJohnson]

It sounds to me like the plan document does address the issue and the answer is NO.

[Kirk Maldonado]

KJohnson:

Are you intimating that the plan document can't be amended to achieve the desired result?

[R. Butler]

I'd read the doument carefully. Even if it says forfeitures reduce, that does not mean that there isn't a separate provision in the Adoption Agreement that does allow for it. Often there is a provision that allows for expenses to be paid from forfeitures and then the separate provision the remaining forfeitures reduce or reallocate.

If the document doesn't allow for it, do as Kirk suggests and amend.

[KJohnson]

Kirk,

I think the document can be amended with regard to forfeitures prospectively. However, I think there may be a cutback question. This langauge has always presented a problem with a discretionary match when an employer decides not to make a match for the year. Other than 415 suspense accounts, I do not believe that the IRS likes to see unallocated amounts after the end of the plan year. In this siutation, I always recommend that the employer declare a "match" in an amount so as to allocate the forfeitures. I think you would have to look at the langague of the plan carefully to determine whether participants have already "accrued" the right to have these forfeited amounts allocated to their accounts. If you come to the conclusion that they have not, then I think you are free to change the plan langauge with regard to the allocation of accrued forfeitures.

[GBurns]

Wouldn't amending the plan to accomodate these forfeitures be a retroactive amendment? Can you make a retroactive amendment?

[R. Butler]

Unless there is an anticutback issue or some specific provision prohibiting it, you generally can make retroactive amendments.