Using forfeitures as QNECs

[Kirk Maldonado]

Has any one else encountered the IRS taking the position that forfeitures of matching contributions cannot be reallocated as (fully vested) QNECs?

The IRS agent is saying that the contributions must be fully vested when they were initially contributed to the plan, citing 1.401(k)-1(g)(13)(iii), which states as follows:

Thus, the matching and nonelective contributions must

satisfy the vesting requirements of paragraph © of this section and be

subject to the distribution requirements of paragraph (d) of this

section when they are contributed to the plan.

I believe that the vesting requirement only need be satisfied at the first time the funds are treated as QNECs; not when they were originally contributed as matching contributions.

[rcline46]

First, congratulations (I think) on having your letter rescinded.

Thinking logically, which is always suspect when dealing with regs, a forfeiture becomes an annual addition when allocated. They are treated as if they were a new employer contribution. Therefore, as a new employer contribution to a participant they should be subject to all of the same rules as any other new contribution. Therefore they should be available as a QNEC, assuming of course the document permits such use.

[Kirk Maldonado]

rcline46:

I wish I could take credit for the new DOL positions, but those changes (which I view of seismic proportions) require powers far in excess of any that I possess.