Forfeiture release date issue

[cpc0506]

I have a plan that was written to release forfeitures when the vested balance was paid out.

The client read the Adoption Agreement (what a surprise) and learned that he had the option of releasing forfeitures earlier and he liked the 5 year break in service rule.

This is amendable, right? There is no benefits, rights, and feature isssue, is there?

Thanks for your guidance.

[Tom Poje]

correct, that is an item that could be amended going forward

[austin3515]

I'd be shocked if your adoption agreement says forfeitures occur at the time of distribution doesn't also provide that a forfeiture will ocurr after 5 breaks in service if no distribution is taken within that timeframe.

Perhaps it's buried in Basic Plan Document, but it doesn't sound right to me that the two would not go together...

[cpc0506]

I'd be shocked if your adoption agreement says forfeitures occur at the time of distribution doesn't also provide that a forfeiture will ocurr after 5 breaks in service if no distribution is taken within that timeframe.

Perhaps it's buried in Basic Plan Document, but it doesn't sound right to me that the two would not go together...

Our prototype document allows the participant to chose an number of options for forefeitures. Two of which are:

1. As of the last day of the Plan Year in which the Plan Administrator distributes the Participant's entire vested interest (this is what was chosen)

2. As of the earlier of the last day of the Plan Year in which the Plan Administrator distributes the Participant's entire vested interest, or the last

day of the Plan Year of the 5th consecutive Break in Service.

So the client wants to change to option 2.

[austin3515]

I suppose that's easier to administer. I've neve seen the option, but there's definitely somethign to be said for it. Remembering to do the 5 year forfeitures is not easy, and more improtantly, remembering that you already DID the 5 year forfeiture is not easy (and quite important!). I jump through hoops on the latter, and for takeovers, have to assume it was done in a prior year (unless the prior TPA's reports make it clear that it was not done)...

Corbel only gives me two choices (5 breaks, or ealirer of 5 breaks/payout).

[GMK]

Remembering to do the 5 year forfeitures is not easy, and more improtantly, remembering that you already DID the 5 year forfeiture is not easy (and quite important!).

Am I missing something here?

You check at year's end whether any inactive, partially vested participants have five one-year breaks, and you forfeit the unvested balance from those that do.

Once they've forfeited their unvested balance, they become 100% vested the remaining balance in their account, and you don't forfeit from fully-vested accounts, so what's to remember?

or am I missing something here?

[austin3515]

What you're missing is that there are humans involved.

[GMK]

True, true. There is that.

And it looked so simple on paper.

[TPApril]

Break in service generally defined as working < 500 hours in a plan year.

Say a participant terminates 1/31/10 in a calendar year plan year, having worked < 500 hours.

Is forfeiture after 5 full plan years at 12/31/15, or rather after 5 plan years of break in service, ie 12/31/14?

[Mike Preston]

Usually the latter.