Forfeitures

[Guest philc]

An plan stated a forfeiture did not occur until 5 consecutive breaks.

The Plan was amended to our Prototype effective 1-1-02 which states a forfeiture will occur at the earlier of distribution, or 5 consecutive breaks.

As of the date of our takeover (1-1-02) there are several terminated participants (prior to 1-1-02) that received a distribution but no forfeiture occurred because they didn't incur 5 consecutive breaks.

Is it reasonable to continue to treat those participants as not having incurred a forfeiture until they do have 5 consec. breaks, or because the plan has been amended effective 1-1-02 to state forfeitures NOW occur at the earlier of distribution or 5 consec. breaks, they must immediately treat those participants as having incurred a forfeiture?

[Guest Kevin A. Wiggins]

For forfeitures to occur at time of distribution, you need to have the cash-out rules in the plan, one of which is the right of the employee to pay back his or her benefits and have his or her vesting restored. Under Section 1.411(a)-7(d)(4), this repayment provision is required to be in the plan at the time of the distribution. Accordingly, for the participants you described, if the plan had no such repayment provision, then the forfeiture occurs upon 5 years of break in service, not at time of distribution.