Allocation of Forfeitures

[anspai]

I have a plan that stopped employer matching (amended the plan's match formula to zero) effective 1/1/2009. There are 2008 match forfeitures in the trust's cash account and the plan document is coded for match forfeitures to pay plan expenses and/or reduce future match contributions.

I understand that a plan cannot carry forward forfeitures and instead must be used up, so my question is:

How should the forfeitures be allocated in a plan that has a zero match formula? Should the plan sponsor select a percentage of deferral with no cap to allow all forfeitures to be used or is there a regulation that specify a formula?

[J Simmons]

Does the plan permit discretionary match despite the fixed match being reduced to zero?

If not, the reduction to zero fixed match has created an impossibility for re-allocation, but for application of the match forfeitures against the plan costs.

Since no one has accrued a right to re-allocation of the match forfeiture in question, perhaps you could amend the coding of the plan document to permit the match forfeiture to be applied as additional profit sharing contribution.

[anspai]

Let me correct my initial statement, they did not amend the plan for a zero match instead the plan doc has always been coded for a "Discretionary Match". The plan sponsor declared, in a board resolution, a zero match for 2009 so they could declare a new match formula via a new resolution.

I guess my real question is, if they declare a match formula then does it need to be a certain percentage of deferral or is it the plan sponsor's choice? And does it need to be unlimited cap on match to insure that all current forfeitures are allocated?

Thanks for your assistance!

[J Simmons]

For discretionary match, most plan documents anticipate the employer determining a total dollar amount and then the plan document supplies a formula for allocating that amount. Check your plan document before declaring the match, so you'll know what parameters might need to be specified in the declaration.

Putting a cap might, as you suggest, prevent the re-allocation of all the match forfeitures.

[rcline46]

Why would anyone state at forfeiture is to reduce unless there is a FIXED contribution? It should be set as added to, and then in a case like this, it works. If an employer makes a contribution, then to get to the amount they want, they short their contribution and add the forfeitures to get the desired result. ALways works.

Of course, they also could declare a contribution exactly equal to the forfeiture, and then reduce it giving the result of -0- new money.

[K2retire]

Why would anyone state at forfeiture is to reduce unless there is a FIXED contribution? It should be set as added to, and then in a case like this, it works. If an employer makes a contribution, then to get to the amount they want, they short their contribution and add the forfeitures to get the desired result. ALways works.

Of course, they also could declare a contribution exactly equal to the forfeiture, and then reduce it giving the result of -0- new money.

We've written thousands of them that way. But ours are specifically coded to allow the forfeiture to reduce any employer contribution, not just the type of contribution from which it was forfeited. Ultimately, reducing or reallocating gets you to the same place, it's just a slightly different route.

[Bill Presson]

Why would anyone state at forfeiture is to reduce unless there is a FIXED contribution? It should be set as added to, and then in a case like this, it works. If an employer makes a contribution, then to get to the amount they want, they short their contribution and add the forfeitures to get the desired result. ALways works.

Of course, they also could declare a contribution exactly equal to the forfeiture, and then reduce it giving the result of -0- new money.

The majority of our plans are cross tested physician plans. We have almost every plan set to have forfeitures to reduce. When we're trying to target the contributions for various groups, I don't want to have to worry that we need to consider $47.53 for each person as a forfeiture to get them to the needed number. We just do the calculation and then subtract the forfeitures from the amount that gets ACH'd.

Seems much cleaner to me.

[BG5150]

Does the document (or AA) allow for the forfs to be used to cover fees/expenses?

Also, I think the forfs can be used to offset the money sent for deferrals, too, since they are considered employer contributions. (The only employee contributions are After-tax and rollvoers)