Separate forfeiture account

[ratherbereading]

I have a balance forward plan with pooled accounts at LPL Financial. Each participant receives their own statement. When forfeitures occur, instead of having a separate forfeiture account, they put the money into the owner's account. I have tried convincing them they need a separate forfeiture account to no avail. They don't want to pay for an account that isn't active. Isn't this a problem for the plan? Forfeitures are supposed to be allocated yearly. Is there regulation I can quote to convince them to have a separate forfeiture account?

Thanks in advance.

[Lou S.]

Yes. Sounds like owner is getting what amounts to a leveraged loan from the plan until the forfeitures are allocated. That is he has the use of the money until it is allocated. Possibly a prohibited transaction. Not to mention the potential to "forget" to allocate the forfeitures at some point. If they are concerned about fees they could probably open up a low/no fee saving account in the name of the plan to hold forfeitures.

[ESOP Guy]

I doubt there is a regulation that says you have to have a separate forfeiture account.

What you can quote to him are all the rules that require trustees to run the plan for the benefit of ALL the participants and what he is doing is giving himself all the earnings from the forfeitures. That isn't for the benefit of all the employees.

I think he could get hit with violating his fiduciary duty to the other participants by doing what he is doing.

I am assuming the forfeitures do get reallocated at some point although the way your phrase the sentence about and use the word "supposed" creates some doubt. If the forfeitures aren't being reallocated per the terms of the document then quote to him the rules about how failing to abide by the terms of the plan is a disqualifying defect.

[Bird]

I have a balance forward plan with pooled accounts at LPL Financial.

The rest of the post seems to indicate you have a self-directed plan. Anyway, in these situations, we just leave the forfeitures in the old account (of the term'd participant) and close it completely the following year.