Forfeiture not allocated during correct year.

[MarZDoates]

Assumptions:

Plan year is 5/1/02 through 4/30/03. Participant terminated employment 5/24/02 with zero vesting. Plan document says that terminated participant with zero vested balance is deemed to have taken a distribution. Forfeitures are allocated in year of distribution.

Assets are in a pooled account. Balance forward recordkeeping.

Question:

Forfeitures from this participant’s account have never been allocated. Is it permissible to go back to pye 4/30/03 and allocate the forfeiture and reallocate gains for all plan years since then? Can we “self-correct” using this methodology? Or would we need to go through VCP? We would need to reissue participant statements with corrected balances.

There was one participant that received a distribution in pye 4/30/05. His vested balance would be affected…he would be due an additional distribution.

Any comments are appreciated. Thanks.

[jpod]

Your title says "not allocated during correct year," but your facts say it has not been allocated at all. Therefore, this is a much easier fix than if you had already reallocated.

I think you can self-correct, but you should study the latest EPCRS revenue procedure carefully and make sure there is nothing that knocks you out of self-correction. Have plan earnings been separately allocated to the forfeiture amount? If so, the correction should be a snap.

Yes, you will have to make a distribution to the participant who received a distribution in a later plan year. Was he only partially vested? If so, then this case is a bit tougher because you'll have two forfeitures to allocate - the original one from 02/03 and then the next one attributable to the 04/05 distribution to the partially vested participant.