Use of Forfeitures

[Randy Watson]

I came across an EPCRS phone forum from 8/24/10, which was presented by Avaneesh Bhagat. During that forum he said that you can use forfeitures to "fund the QNCs required to replace the missed deferral opportunity of an excluded employee". I've never heard this before. Has anyone done this?

I was under the impression that you couldn't do this because QNECs had to be 100% vested when contributed to the plan and forfeitures clearly weren't 100% vested when they went into the plan. I can see using forfeitures to correct the match or nonelective contribution, but missed elective deferrals?

[John Feldt ERPA CPC QPA]

If you submit an application under VCP, you can propose a lot of different methods for correcting the plan. If the IRS ultimately agrees, you'll get a compliance letter that indicates they accept your method.

However, under SCP, you'd be taking a risk that a later audit might find that your method is not satifactory to the auditing team.

I don't think he was stating that you can always use forfeitures to fund a QNEC when correcting a plan error, but if you ask them with a VCP application, it's possible, depending on the facts and circumstances, that they may accept such a use of forfeitures.