what to do with Forfeitures

[Spencer]

Plan terminated in 2008. All participants are paid out, but there is $3500 remaining in forf. suspense account. Doc says forfeitures can be used to pay plan expenses or reduce contributions. No contribution for 2008 and plan expenses have already been paid by employer. Client wants the forfeitures returned to company as reimbursement for fees paid. Would that be considered a reversion to employer? Client also wants to avoid 5500 for 2009. If we allocate forfeitures now, we most likely can't get the add'l payouts done by 12/31.

Thanks!

[Guest Sieve]

I think (but am not certain) that a plan can, in fact, reimburse the employer for plan administrative expenses already paid. If so (& hopefully someone will confirm or contradict my belief), then it would not be a reversion--and you should certainly review the bills to make certain that you are reimbursing administrative expenses and not employer settlor expenses.

[Kevin C]

I'd like more information on the forfeitures.

When did the people who forfeited the amounts terminate employment?

When were their distributions paid?

What are the plan provisions on 100% vesting at plan termination?

Was there a partial plan termination prior to termination of the plan?

[Bird]

I don't think you can reimburse the employer for expenses and not have it be considered a reversion. I don't have a cite but, well, that's what I thought.

Having said that, the other choice isn't pleasant - try to reallocate, but incur significant fees that make you end up chasing your tail, especially if you spill into the next year.

Kevin C. raises good questions about the source of the forfeitures too. As I've noted elsewhere, the IRS seems to start with the premise that anyone terminated in the last five years should be 100% vested. That's not necessarily true, but it's something to keep in mind.

Sorry, this is not much help.

[Spencer]

I'd like more information on the forfeitures.

When did the people who forfeited the amounts terminate employment?

When were their distributions paid?

What are the plan provisions on 100% vesting at plan termination?

Was there a partial plan termination prior to termination of the plan?

People who forfeited term'd in 2003 and prior - most of the forfeitures are from 2000. Distributions were paid years ago as well. I know, why weren't forfeitures used previously? Or reallocated upon plan term? I don't know - I just started new job, trying to clean up some messes.

per plan doc, all participants became vested 100% at plan term.

No, partial plan term prior to termination of plan.

[Guest mjb]

Its Christmas - why not make a charitable contribution to help some needy people. At the rate you are all going the $3500 will be spend in legal fees trying to figure out what to do with the money.

[Guest Sieve]

Of course, mjb, as indicated by Bird, it also will be administratively difficult to locate everyone and pay out the forfeitures that are allocated--and, in most instances, the fees for cutting a check and issuing the 1099-R will eat significatnly (or eliminate) the forfeiture allocation.

That being said, the right thing to do is to distribute to those paid out in 2003 (Christmas or not, of course . . .). But, that won't be able to happen in 2008. So, the employer probably will opt to reeimbruse for expenses. Even though I'm not convinced that you can't reimburse the employer for expenses paid, I'd make sure that you get a definitive answer to that question before using any of those funds for employer reimbursement.