Forfeiture allocations to former employees

[davef]

An employer allows for immediate distributions when a participant quits. Its plan also reallocates forfeitures to participants, rather than using them to reduce employer contributions. This results in forfeiture allocations to former employees after the end of the plan year and many times the forfeitures are less than $5.00. Rather than issuing checks for such small amounts, the employer would like to establish a policy where it would not reallocate "de minimis" forfeitures (e.g., less than $5.00) to former employees. Can this be done? Has anyone had to deal with this issue?

[Guest LMalone]

I would like to revive the question as we now have the exact same situation. Our client would like to have a policy whereby anything under $5.00 is forfeited. This occurs when earnings may be posted after the participant has terminated and received an immediate distribution. The administrative cost to process this payment exceeds the amount of the distribution. There seems to be nothing official in the Code or regs.

[Guest]

I know of nothing in the regs that addresses small aounts either.

the closest is in Rev Procedure 2000-16 (Section 6, .02(6)(B) -delivery of very small benefits- If its less than $20 the plan sponsor is not required to make it if the costs of providing the distribution exceed the amount of distribution. This deals with corrective distributions, but maybe there is a Rev Procedure that says the same thing for other distributions.

[Guest michaelv]

We've always been under the impression that no matter how small (even cents) the payout, that the participant is entitled to this amount. Our reasoning has been based on not being aware of any reg's that say you can forego these payouts and a general belief that too simply not pay these amounts out for administrative reasons works against the trustee acting in the best interest of the Plan participant.

[AndyH]

I agree with the last response from michaelv.

Plus, I would think such a provision would need to be in the document, which would normally be the subject of a determination letter application, so I would insist the client amend the plan subject to IRS approval and seek one before implementing such a policy.