Distribution of Forfeitures at Plan Termination

[Guest MSWilson]

My client is in the process of closing down a profit sharing plan. The plan had several accounts for employees who terminated employment during the past three years without becoming vested ( they have 5 year cliff vesting).

These ex-employees were removed from the plan and their balances were transferred to a forfeiture account.

Will the forfeitures be distributed to the remaining active participants at the termination of the plan?

OR

Will these ex-employee/ participants be restored at 100 % vesting and their forfeited balances be restored?

[Blinky the 3-eyed Fish]

The pervasive opinion is that you have to 100% vest active participants and terminated participants that have not forfeited their balances. In your case, the forfeiture apparently occured prior to the plan termination, so their account balances are not restored.

Now, you need to see what your document says to do with forfeitures. Chances are it says to add to the employer contribution for the year or reduce the employer contribution for the year. It's semantics really. If it does say reduce, then declare a PS contribution for the forfeited amount and allocate according to the provisions in the plan.