Over-contributions / Forfeitures

[Guest Jhagan]

In a money purchase plan, an employer makes a quarterly contribution for eligible payroll. The plan has the last day of the plan year provision. The employer makes contributions through the termination date which are never allocated to the participant. What happens to those monies? Does most employers keep track themselves and reduce their next contribution? Do they appear on the plan's financials as over-contributions? Are they returned to the employer? Should these monies be included in the allocation of interest if left in the plan.

Also same questions for forfeitures that are used to reduce employer contributions.

Please give some examples of how these issues are being handled. Thanks.

[Guest ERead]

Well - first off - I almost never allow the plans that I work with to have the last day provision if they are going to be making on-going contributions. That's the easiest way to avoid this problem.

Other than that you'll need to read the document to see what it says about excess aggregate contributions, they are usually allocated to the participants, however in a MPPP - it maybe different, and could pose a problem for the formula.

The forfeiture situation is a little more easily resolved - amend the allocation to state that the forfeitures reduce the employer's contribution in the year following. That makes it easier to lower the contributions by the forfeiture amounts.

I'd say you've some explaining and amending to do with the client.

Good luck