ACP Refund

[fiona1]

Our test is 1/1/04 to 12/31/04 and there is a HCE who is due an ACP refund.

They were 50% vested on 12/31/04 and they are 75% vested now.

Anyone know what vesting % to use to determine how much of the refund has to be forfeited?

Thanks!

[Tom Poje]

well, it should be the vesting at the time during the plan year of failure.

so I would normally say 50%.

how about if I say neither of your answers is correct as long as you have a decent document?

the new regs have an example #7 in 1.401(m)-2(b)(5).

basically, as long as the person will be fully vested in a few years you are ok and as long as the 'plan provides a seperate vesting schedule for vesting these nonvested matching contributions'.

so as long as your plan has some type of language dealing with 'partial vested distribution' you are ok. eg. usually it reads something like X = P(AB +D)-D

x is vested bal, P is vest %, AB - current account bal D is distribution.

the example says refund $1000. (modified for your case)

ee is 50% vested

2 choices $500 refund and $500 forfeiture.

alternate $1000 refund, BUT....

after his refund account balance is $1000. normally 50% vested would show $500, but he has already received that, so his vested balance is 0.

now at the end of next year he is 75%, so his vested balance would be an additional $250.