Forfeiture Allocations

[Guest baker0429]

Is testing necessary when forfeitures are allocated to plan participants at plan termination?

[Guest Kevin A. Wiggins]

Look at 1.401(a)(4)-5. This section talks about whether the timing of the plan termination has the effect of significantly discriminating in favor of HCEs or former HCEs. Look at Example 1 where the employer is winding up the business, the plan covers only HCEs (that is all that is left in winding up the business) and the employer amends the plan to increase benefits. I've seen the IRS discuss this on audit in the context of forfeiture allocations. There are other possible scenarios where the termination and forfeiture allocation could be impermissibly discriminatory.