What impact do forfeitures have with the 415 limit?

[pbarrett]

We have a ps plan for period ending 12/31/02. The contribution allocation is 25% of comp. The deduction will be the same. There is a forfeiture of appx $20,000. I can allocate it and no one will hit their 100% of comp value.

Can I reallocate the forfeiture without a problem? I have a mental block about the 25% limit. In other words, with contribution along with the forfeiture will give everyone about 27% of comp, ok? Naturally, the employer would only deduct the 25% because he has already deducted the forfeiture once.

Thanks.

[david rigby]

What does the plan say to do with forfeitures?

As you state, already deducted once.

Do you have a problem with IRC 404(a)(3)(A)(i)? (My hunch is that if the answer is "yes", then you may have a problem in prior years.)

BTW, for that mental block about 25%, see EGTRRA, and the plan amendment which adopted appropriate provisions.

[WDIK]

pax:

Could you elaborate on your reference to a problem under 404(a)(3)(A)(i) with regard to 25% contribution being deducted? Did you mean that the deduction limit was 15% for plan years beginning on or before 12/31/01? I'm just trying to make sure I'm not missing something obvious. Thanks.

[david rigby]

My mistake. I forgot about the EGTRRA change to the referenced Code section. 25 % is correct.

[pbarrett]

The plan document states forfeitures are to be reallocated. Therefore, can I go over the 25% amount and reallocate the forfeitures. Does anyone see a problem?

(The prior years are not an issue. Low turnover. Haven't had forfeitures to deal with in years.)

[R. Butler]

I don't see a problem. The 25% is deduction limit. You are not deducting the forfeitures. The annual addition limit is the lesser of $40,000 or 100% of comp.