Forfeitures

[Guest JB2]

My plan requires excess aggregate forfeitures to be used to reduce employer contributions.

I am looking for suggestions on how to handle this without violating regulations regardings assets held in trust.

Basically, this is the issue: can a check be cut to the Trustee FBO of the plan. The trustee deposits the check into an account that is used only to pay employer contributions.

OR, must the forfeitures stay in the trust, and be reduced by future employer contributions requirements until depleted.

Just wondering how other people might be handling this.

[Ervin Barham]

Is this "contribution account" a part of plan/trust assets? If so, you could certainly transfer from one "fund" to another inside the trust.

If, however,(and your question would lead me to think this is the case) it is just an account of the employer, then no, you cannot pull those out of the plan and return them to the employer.

If you do, you have violated the terms of your plan and probably disqualified your plan in violation of the exclusive benefit rule.

Most often, these are just held until they can be used to reduce the contribution in accordance with your plan's terms.

[Guest ERead]

Several things come to mind. I've been through audits before where a client has done exactly as you detail - however, the paper trail must be easy to follow, and document - including any interest earned, and may I say as well, that the funds shouldn't have any time difference as far as when withdrawn and when the checks are issued.

What I have also seen is to set up a "Management account" as a dummy participant, place those funds on a book basis in that account, until the next deposit - at which time you value the management account, reduce the deposit amount, and allocate accordingly with the deposit to the participants......

Good luck.....

[LCARUSI]

It sounds to me like you want to wire funds from the Plan to the Trustee so the Trustee can then remit the funds back to the Plan for matching contributions.

Why do that? (even if it is legal and I'm not sure that it is)

You have a forfeiture account with $5,000. Those funds are already in the Plan. If your next required matching contribution (for example) is $1,000, the company would not remit those funds to the Plan. Instead, you would use $1,000 of the $5,000 forfeiture account. After this transaction, you would have $4,000 remaining in the forfeiture account to offset future matching contributions.

(This was a "generic" discussion of procedures for reallocating forfeitures. You must read the Plan document to be sure you adhere to its rules regarding timing and reallocation method of forfeitures.)

[Note: This message was edited by LCARUSI]

[This message has been edited by LCARUSI (edited 11-12-98).]

[Guest JB2]

Thanks for the info. But maybe I need to qualify my question. At the end of 1998 the plan has a dummy forfeiture account of $5,000 (includes interest / dividents, etc). The plan requires that the funds be used to reduce future ER contributions.

The only ER contribution is match money which is collected on a per pay basis. In 1999, can a wire of $5,000 be forwarded to the trustee. He places the money in a separate checking account used only to fund the match contribution. It may take as little as one pay period or the full 12 months to deplete the $5,000.

Can this be done?

[Guest ERead]

IMO - you shouldn't do that. I would suggest instead that you distribute the money from that management account on a per period basis with each payroll, and reduce your matching deposits - if neccessary to 0 until the $5,000 is depleated.

[Guest ESOPwizard]

There is a (frequently ignored) revenue ruling from the 70s

which requires that the money be allocated by the end of the

plan year. If you to have money in suspense at the end of

the year, you should write the rules in the plan document

and get IRS approval as part of the determination letter process.