Refund of Non-Vested Match

[MGOAdmin]

I have a client that fails the ACP test and is required to refund match to two HCEs. One of the HCE is not fully vested in the match contriubution.

How is the refund handled in this case - does he still receive the full refund, or is part of it forfeited?

[cpc0506]

he receives his vested match amount, remaining funds are forfeited.

[Tom Poje]

this could depend on document language. the document might say "Forfeit the unvested portion"

but the regs do permit 2 possibilities. I doubt many are aware of this, tripped across it years ago. ok, maybe I should say I might be one of a limited number that even knows this is in the regs. (But then I might miss the obvious but know the obscure)

1.401(m)-2(b)(5) example 7

1. the normal way (for lack of better term) distribute vested portion and then forfeit unvested portion

2. distribute 100%, but now you need to keep the nonvested portion in the plan and it has to vest as rapidly as it would normally. I think if the document had the normal vesting language you are cover

whatever that silly language is p*(AB+(R*D))-(R*D)

let's suppose the distribution was $1000 and the HCE was 80% vested.

you could distribute 800 and forfeit 200

or distribute 1000, but now, at the moment he sort of has been paid out an extra $200. if his remaining match balance was 2000 then at 80% he would be entitled to 1600 less the 200 'extra' he just received. so he receives an odd participant statement. balance = 2000. 80% vested, but vested balance = 1400. but next year he earns a year of service, and is now 100% vested so the problem goes away. well, that is the best I can explain it.

If Ricky Ricardo was around maybe he could 'splain it better.