Forfeiture Failure

[Nassau]

ABC Company has been moving forfeiture assets from the participant account at the point of termination, not waiting until the end of the year, per the plan document. This has gone on for 7 years or so. What concerns should they have? Is this correctable? How often have you seen plan designs like this? What are their options?

The Plan Document states In the event a Participant incurs a Termination of Employment, any portion of the Participant's Employer Contribution Account to which he is not then entitled pursuant to plan dopcument hereof shall be forfeited (a "Forfeiture"). A Forfeiture shall be deemed to take place at the following time:

(a) If the Participant has no vested interest in his Employer contribution Account, the Forfeiture shall take place at the en of the Plan Year in which his Termination of Employment occurs. In such case, the Participant shall be deemed to have a distribution of his zero Account Value at the time of his Termination of Employment.

(b) If the Participant has any vested interest in his Employer Contribution Account, the Forfeiture shall take place at the end of the Plan Year in which occurs the earlier of (i) completion of distribution of the Participant's benefits or (ii) incurrence by the Participant of his fifth (5th) consecutive one year Break in Service.

[WDIK]

ABC Company has been moving forfeiture assets from the participant account at the point of termination, not waiting until the end of the year, per the plan document.

To where were the forfeitures "moved"?

[Bird]

I wouldn't be concerned. I'd rather the plan say that forfeitures occurred upon distribution, instead of the end of the year, but the physical moving of money during the year instead of at the end isn't a problem, at least in my opinion.

[masteff]

The thing to review most carefully would be rehires... they might have forfeitures that were removed and never restored.

[Kevin C]

I would also look carefully to see if the forfeitures for partially vested terminated participants were handled properly. Once the non-vested portion of their accounts reaches the forfeiture account, how do you track when the amount is supposed to be forfeited?