Rebalance a Particpant Account 401K DBP

[Guest SherylM]

I have an Auditor who states that an Employer can rebalance the unvested portion of a terminated participants account into the Forfeiture Account upon termination of employment, however the Recordkeeper states that an Employer cannot rebalance any participant monies, terminated or not. Further, the only way an employer can do this is a) after a 5 year break in service and, if the employer in fact does do this, - the employer must restore the 401k plus any gains or losses if the participant becomes re-employed within that 5 year window.

Help/Comments please!

[GMK]

the usual starting point: check the Plan Document.

I'm used to seeing that:

Forfeiture occurs either: a) when the participant takes a distribution of her/his vested balance, or b) after five one-year breaks in service, whichever happens first.

If the participant is rehired BEFORE five one-year breaks in service, the participant has the option to pay back to the plan the amount distributed to her/him, and if the participant does repay that amount, then the employer must restore the previously forfeited amount to the participant's account. If the participant is rehired AFTER five one-year breaks in service, the participant does not have the option to repay the previously distributed amount, if any, and the forfeited amount is not restored regardless of whether the participant previously took a distribution.

[Bird]

the usual starting point: check the Plan Document.

Amen; read the document (!)

Vague statements like "...an Employer can rebalance the unvested portion of a terminated participants account into the Forfeiture Account upon termination of employment..." are usually an indication of someone who knows just enough to be dangerous.

And, FWIW, when you do look it up in the document, you are looking for when to forfeit, not "rebalance."

[Guest SherylM]

This has been an ongoing problem with this Auditor. He tells me what can and can't be done with this Plan. I ALWAYS verify with the RecordKeeper and the Plan Document - yet he trots on up to the Employer and the Employer takes his word over both mine and the Recordkeepers. Any suggestions?

[Bird]

This has been an ongoing problem with this Auditor. He tells me what can and can't be done with this Plan. I ALWAYS verify with the RecordKeeper and the Plan Document - yet he trots on up to the Employer and the Employer takes his word over both mine and the Recordkeepers. Any suggestions?

In this case, find the section of the document dealing with forfeitures, and ask him to find where it says what he thinks it says. And tell the Employer that failure to follow the terms of the document is a potentially disqualifying event, meaning either the account balances all become taxable, or the Employer has to pay a lot of money, in fees and penalties, to fix the error(s). Feel free to use this thread as confirmation that other people, who actually know what they are talking about, disagree with the auditor.