Forfeitures Used to Pay Plan Expenses

[Guest sao0308]

The plan document allows forfeitures to be used to pay plan expenses. No plan expenses were assessed during the year-end valuation that we are currently working on but there was a forfeiture balance. Can we leave the forfeitures in the plan assets and report the entire account balance on 5500 for the 2005 plan year? Should we show the forfeitures as a liability for the 2005 plan year because we will be using them to pay the plan expenses in 2006 for the 2005 plan year - the 5500 is on an accrued basis. I have handled both ways but want to know legally how we should be doing this. Thanks for any thoughts on this subject.

[Bird]

If the plan says that forfeitures can be used in the year in which they occur or a future year, we'll just leave them in suspense. If they have to be used in the current year, and the payment doesn't get made for one reason or another (gasp), we'll accrue an (administrative) expense which uses up the forfeitures, and creates a liability that goes away when the expense is paid in the following year.

[Guest sao0308]

Do you show it as a liability on the Sch I or include it in the Other Expenses on Schedule I? Plan already has fees from the investments, so my thought is to add the accrued plan expense to that number because it really doesn't fall into the items listed as a liability. Thanks for the info.

[BG5150]

Does the plan document have a heirarchy that dictates what happens if the the forfeitures are larger than the fees? Is there no provision to then either reduce employer contributions or reallocate to participants?

[Bird]

I can't quite remember a case to look it up, but I think if you're going to accrue the expense, you have to show it as an (other) expense and also show it as a liability, otherwise you won't reconcile.