Failure to reallocate forfeitures

[PMC]

Plan states forfeitures are to be reallocated. Forfeitures have accumulated for 3-4 years and have not been reallocated. Employer now wants to dispose of all these forfeitures. Assume the correction is to go back and determine who should have received the forfeiture reallocation for each year the plan required reallocation.

This forfeiture reallocation would be counted as a annual addition for the current plan year wouldn't it 1-1 plan year/fiscal year and no extensions)? If that's the case but what about former participants who are no longer actively employed and no compensation for this year? Is this a problem or are they due a share of the forfeiture regardless and no 415 issue for them.

Also - seems a significant enough of an error that VCP should be followed?

[Guest Sieve]

Frankly, I would correct by using the forfeitures to pay administrative fees.

But, if you correct as you suggest (which is the correct way, as far as I'm concerned), the amount of the correction is not considered as a 415 allocation for the year of the correction. See EPCRS, Section 6.02(4)(b): "A corrective allocation to a participant's account because of a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant for the limitation year in which the correction is made, but is considered an annual addition for the limitation year to which the corrective allocation relates. However, the normal rules of § 404, regarding deductions, apply."

I would feel more comfortable under VCP (rather than SCP), depending on the dollar amount of the forfeitures.