Plan Amendment re Forfeitures

[chris]

PSP currently provides for forfetures to occur after 5 one-year breaks in service. Plan is to be amended such that forfeitures occur upon the distribution of a terminated participant's vested benefit. Was considering making said amendment effective as of first day of current plan year, i.e., Jan. 1, 2004. Anyone see any issues here re the effective date? It's clearly easier from the plan administration perspective than having to track the amounts for 5 years.... From a practical standpoint, the amendment would cause participants to receive a greater amount of $$ quicker, i.e., allocation of a larger number at year end. I could see a difference if the amendment were going the other way...from immediate forfeiture to 5 one-year breaks.... The only possible issue might be discrimination in favor of HCE's, however, there are far more NHCE's in the plan who would benefit from the amendment.

[four01kman]

The first issue that comes to my mind (beleaguered as it is by two hurricanes with a third on the way) is whether the current account balances of all non- or partially vested participants will be able to have the "better" of the two schedules apply for at least a portion of the next five years with respect to balances accrued prior to the effective date. If this is the case, then the effective date probably can be retroactive to the first day of the current plan year.

[Blinky the 3-eyed Fish]

401k, I don't understand your post. What do you mean by "the better of two schedules"?

Anyway, to the question, since the change would only increase people's allocations, you are fine. Go forth!

[david rigby]

Doesn't that depend on what the plan directs you to do with the forfeiture?

[chris]

Forfeitures are to be used to pay plan administrative expenses first. Remaining forfietures are to be allocated with the employer contribution.

[Blinky the 3-eyed Fish]

Pax, could you elaborate on your post? I can't think of a scenario where a participant is cut back because dollars were forfeited sooner rather than later.

[david rigby]

The only possible issue might be discrimination in favor of HCE's, however, there are far more NHCE's in the plan who would benefit from the amendment.

Hmmm. I reread the original post, and my concern is probably covered there.

However, the quote from the original might need a bit more attention. It is not the absolute number of affected NHCEs that is relevant.