Forfeitures for Top Heavy

[Madison71]

Plan missed top heavy contribution for several participants over several years. Sponsor will correct under VCP, but wants to use forfeitures

to correct (the missed contribution plus earnings). Plan document permits forfeitures to be used to reduce employer contribution.

Thanks in advance!

[Madison71]

...I guess I need to add the question - is this permissible?

[Lou S.]

I am not sure about prior years but I am unaware of any restriction in the code on using currently available forfietures to fund some/all of the top-heavy minimum. 416 referes to alloaction which inculdes allocation of forfeitures.

My guess however is that you can't use the forfietures to fund the back (or missed) contributions as the IRS would likely deem that a cutback to current partictiants who in theory would be entitled to a potion of them.

[PensionPro]

Since the plan provides for forfeitures to reduce contributions and not to be reallocated it is possible that the IRS will approve your proposed correction under VCP if under the facts and circumstances no other participant is shorted for the prior or current years.

[Kevin C]

With a missed profit sharing contribution, you should be able to do that since the plan says forfeitures reduce employer contributions.

Rev. Proc. 2008-50, Section 6.02(4)© Corrective allocations should come only from employer nonelective contributions (including forfeitures if the plan permits their use to reduce employer contributions).

[cpc0506]

With a missed profit sharing contribution, you should be able to do that since the plan says forfeitures reduce employer contributions.

Rev. Proc. 2008-50, Section 6.02(4)© Corrective allocations should come only from employer nonelective contributions (including forfeitures if the plan permits their use to reduce employer contributions).

I am not sure if you can use forfeitures to make up the 'lost earnings' though. Anyone else feel this way?

[Kevin C]

I don't. 6.02(4)(a) says corrective allocations are adjusted for investment gains. To me, that means the term "corrective allocation" includes the lost income.

[Madison71]

Thanks everyone for weighing in! I greatly appreciate it.

[cpc0506]

I don't. 6.02(4)(a) says corrective allocations are adjusted for investment gains. To me, that means the term "corrective allocation" includes the lost income.

Thanks for this insight.