Forfeitures not used

[Guest deathbycashcall]

Plan document provides that forfeitures be used towards plan expenses, then to reduce match, then reallocated. Client stopped matching mid-year and paid plan expenses from the corp. We have about $7,000 in unallocated forfeitures at year end. Would it be appropriate to reimburse the corporation for the plan expenses that were inadvertently paid from the corp? Or must we reallocate? Reallocation is difficult because the match formula was 50% up to 6% per pay period. I guess I could treat the $7,000 as a discretionary match at year end somehow. But it sure would be a lot easier if we could just apply the forfeitures towards a fee reimbursement to the corp. All thoughts, experiences and advice appreciated!

[Guest 401der]

Since the expenses were already paid and there is no match, then you must reallocate as a discretionary profit sharing contribution based on compensation.

[stephen]

If your docment says that you pay towards expenses, then reduce match then reallocate I thiunk you have to follow the document and reallocate. If the document does not specify how you should reallocate perhaps the document allows for an administrative proceedure to be adopted (we use Corbel) and this proceedure provides for the allocation method of those unallocated amounts.

It is my understanding that forfeitures should be reallocated in the year in which they were forfeited.

[Guest deathbycashcall]

If reallocation is the only alternative, and the document does not provide for discretionary profit sharing allocations, then what? Even if the document did provide for discretionary profit sharing contributions, I believe the document is directing forfeitures to be reallocated as a match. Actually, the profit sharing formula is a class-allocation formula, further adding to my administrative burden!

[stephen]

I am not convinced that you should allocate based on compensation unless that is what your document provides for. Perhaps participants who have not been deferring do not have a balance and you do not want to allocate to them their pro rata share of the forfeiture as this would give people balances who previously had no balance.

This is where the administrative procedures come into play. They provide for the trustee to elect allocation as an additional match or based on compensation.