forfeitures allocated to terminated participants

[Guest billy bong]

just wondering how common it is to allocate forfeitures to those participants who have terminated and are also entitled to a contribution (assuming forfeitures are allocated the same way as comp ...).

in our old firm, 100% of our plan documents did not allocate to terms. in this new firm, its 50/50.

thanks

[Guest Dook]

Can't say how common it is, but I have run across it. I can say that Sponsors shy away from it because:

1. Why give this money to employees who have left?

2. With more plans paying out more frequently than once per year, you often end up making an additional distribution to these participants.

I can also say that it is a pain in plans with a vesting schedule because the terminated participants who are partially vested will forfeit some of their share (they may also share in some of their own forfeiture if the plan has a cash-out rule.) Very confusing!

[PLAN MAN]

Under the provisions of a standardized prototype plan document, any participant who terminated during the plan year with more than 500 hours is entitled to receive an allocation of the employer contribution. If forfeitures are allocated in the same manner as the employer contribution, the terminated participant with more than 500 hours would also receive an allocation of forfeitures. Forfeitues must be allocated in a nondiscriminatory manner.