Forfeiture Accounts

[Guest Iwonder]

Are there Regulations/Guidance mandating what type of investment funds forfeiture account assets must be invested in?

We understand that low risk is a must, but do these type of assets have to be in Money Market Accounts?

Thank you!

[JanetM]

Not required. Most plans find it is easier to set up participant called Mr. or Ms. Forfeiture and use the default fund(s) of the plan.

If this plan doesn't have default, investment committee or plan sponsor need to document the selection of the fund used for forfeitures.

[PMC]

What happens if fund in which the forfeitures are placed loses money? For example - suppose Plan states forfeitures are to be reallocated. $1000 of forfeitures are placed in a fund and that fund is only $900 at time they are to be reallocated. If participants have accrued a right to "forfeitures" under the Plan, does that mean the employer must make up the $100 so that participants get the forfeitures they have an accrued right to?

[WDIK]

If participants have accrued a right to "forfeitures" under the Plan, does that mean the employer must make up the $100 so that participants get the forfeitures they have an accrued right to?

What is the result if the forfeiture fund increases in value? Does the employer get a credit?

[WesleyT]

What is the result if the forfeiture fund increases in value? Does the employer get a credit?

In this market, we have seen PMC's question arise constantly. According to the document, the forfeitures are determined as of the last day of the plan year. Most of our plans' default funds are Balanced funds, though, and the forfeiture account has suffered significant losses since the end of the plan year.

WDIK - It seems that contributing extra money goes against the document timing for determining the forfeitures. But if you don't have the employer contribute extra money, how do you account for the loss? Do you account for it as an investment loss for those participants getting a share of the contribution? Also, when our forfeiture accounts have gains, we generally use it as a forfeiture for the following year. In those situations, the employer is getting the credit for the investment gain.

Anyone else care to share their thoughts/practices?

[Bill Presson]

FWIW, we always recommend using the money market account and we always recommend using forfeitures to reduce the employer contribution.