Forfeitures and 415

[Guest tmills]

As we know, if a plan passes the 1/3 rule, forfeitures are not included in the 415 test. However, it is not all forfeitures that can be ignored, according to 415©(6) it is only forfeitures of employer securities acquired with a 404(a)(9) loan that can be. 54.4975-11(d)(4) says no stock allocated from a suspense account (eg acquired with a loan) is forfeited before all other assets available for forfeiture are. Therefore, in order to accurately perform the 415 test and forfeit amounts from a participant's account, it is necessary to track the source of the shares, forfeit cash, other assets and non-loan shares first which are then included in the 415 test regardless of the 1/3 rule, then forfeit loan shares as needed. Only the loan share forfeitures are excluded from the 415 test and only if the 1/3 test is passed. Have I stated that correctly? If so, what a pain. As always, thanks for any comments.

[RLL]

Your approach sounds correct to me.

Note, however, that the exclusion of forfeitures under 415©(6) applies only in years when payments are being made on an ESOP loan (when deductions are claimed under 404(a)(9)) and that the exclusion is not available for an S corp ESOP.

[Guest tmills]

Thanks RLL. At least we don't have to do any complicated procedures to ensure the tests are done right. Who comes up with this stuff?