401(k) forfeitures

[Guest ANBFREE]

If forfeitures in a 401(k) plan are used as a discretionary match rather than to reduce matching contribution, is this amount used as a contribution in the ACP test. This is the issue--BYSIS tells us no, PPD tells us yes. Our recordkeeper tells us no. In a sense these are forfeitures first and reallocated as match.

[R. Butler]

If forfeitures increase the discretionary match they are included in the ACP test. Its an additional matching contribution, what would be the basis for excluding it?

[Guest Bob K]

I agree.

See Reg. 1.401(m)-1(f)(12)(i)©.

What are the others using as the basis not to follow this reg?

[Brian Gallagher]

I didn't think you could reallocate as match. You can realloc forfeitted match money, tho'. Our doc and all the other docs that I've seen that reallocated forfs, have them gived to everyone as an employer non-elective contribution (profit sharing, not QNEC).

That would mean if someone did not defer, the person could still get a part of the reallocation. That money may be "coded" as match in his account, but is really just the reallocation. So, to me, you can't reallocate as match.

[R. Butler]

Forfeitures most definitely can be used to increase the disretionary match. In these cases the money is only allocated to those who deferred. The site Bob K references clearly contemplates these situations.

[E as in ERISA]

I agree with R Butler and Bob K.

In smaller plans it may not be uncommon to reallocate as a nonelective contribution. But in a very large plan of a very large company, you would not expect to allocate it as a nonelective contribution. You might all of a sudden have an additional 1,000 or 10,000 participants with very small balances. And you'd have recordkeeping fees for all those participants. And you'd need investment elections (or default elections). Etc.

Your Bysis contact may just have experience with small plans -- and may not have experience allocating as an additional match. PPD would have more experience with large plans.

Or Bysis may just be indicating that they will not allocate the additonal match in the CURRENT year and it will not affect the CURRENT year's ACP.