NHCE gets allocation and forfeits in same year

[SheilaD]

I have a cross-tested PSP. Participants who terminate with more than 500 hours receive an allocation. One of the groups is Doctors who are hired after 2005. I have a doctor who enters in 2009 and is not highly compensated for 2009, and terminates in 2009 with more than 1,000 hours. He is zero percent vested. The document calls for deemed distributions to participants who terminate with 0 vesting and there is no mention of when the forfeiture occurs.

The problem I have is that this doctor is getting a fairly high contribution because the client wants to benefit that group. This benefit in turn helps the plan to pass non-discrimination as the doctor is new. But the whole contribution is going to be forfeited either in 2009 or 2010.

In my mind I'm thinking about the retroactive amendments when you fail a test and amend to increase the benefits for some NHCE's. I know that you cannot do this for non-vested terminees as it is not a meaningful benefit. Is there a meaningful benefit rule for general testing?

If the contribution and forfeiture both occur in 2009 does it make sense to include the contribution in the test at all?

I don't recall ever reading something that allows me to either exclude him from the test or to not count the contribution because it will be forfeited - but the fair part of my brain just thinks this should not work.

Thanks for any thoughts.

[Blinky the 3-eyed Fish]

The forfeiture is irrelevant in the nondiscrimination testing. You count the whole contribution that he received. If you want some comfort, know that if he was re-hired, his forfeited contribution would be reinstated automatically.

As an aside, IMO well drafted documents do not forfeit accounts in the year in which a contribution is allocated.