Forfeiture Allocation

[Guest djm]

This question may be way off.....

If forfeitures are not utilized to reduce matching contributions in the year the forfeiture occured as required by the Plan document, can the Defined Contribution Plan become disqualified? If so, can anyone point me to the literature that may explain this?

Thanks for the help!

[FundeK]

If forfeitures aren't used in accordance with the terms of the written plan document, you have an operational failure, which of course, is a bad thing.

Did your document have a back-up, such as the forfeitures are used to reduce, any remaining after the end of the plan year are used for expenses or reallocated?

[Guest djm]

If I understand your question correctly, if the forfeiture exceeds the amount of the contribution to be applied, the remaining forfeitures will be allocated as an addtional discretionary nonelective or discretionary matching contribution or they can be applied to the nonelective or matching contribution in the succeeding Plan Year.

Correction to my question......

The Plan Document calls for forfeitures to be used as a discretionary matching contribution not to reduce the matching contributions.

[Guest hyper]

Review the plan language carefully. Does the plan say the forfeitures will be used to make an additional matching contribution or does it require the forfeitures be used to offset the matching contribution ?

If forfeitures are used to offset the match, and a matching contribuiton was made to the plan without allocating forfeitures, you have an operational error. Review Rev. Proc. 2003-44 for potential corrections.

If forfeitures are to be used as an additional (as opposed to offsetting) discretionary match, the word discretionary implies the ER has some discretion regarding when the forfeitures are to be allocated and this language may not require the forfeitures be allocated in the plan year. The ER may use discretion and allocate forfeitures in the next year.