Reallocation of forfs, after 415 date

[BG5150]

We have a plan for a company that went out of business in 2015. Plan terminated, and final distributions were done in 2016.

However, the forfeiture account was never liquidated. There are no more fees to be paid.

How do I reallocate the forfeiture account now, being that the date for which annual additions for 2015 has passed on 10/15. I obviously have no comp for 2016.

Do I just reallocate it on 2015 comp and move on?

[ESOP Guy]

My guess you have thought of this but it is worth asking.

Does the plan allow them to be used to pay fees and are there any fees? That would solve a lot of problems which is why my guess is you thought of it.

Other then that I don't see what choice you have but to allocate based on the last set of compensation that was in existence. Can I cite anything? No, but you have to use some rational method and the only other method would be based ratio of balances like earnings and with forf it seems like comp is better.

[Doghouse]

For what it's worth, the EOB addresses this issue, and suggests that there is a reversion to the employer in this case.

[BG5150]

Actually, I was thinking it was failure to follow the terms of the plan and eligible to self-correct. We would allocate it using 2015 comp.

Can you tell me where in the EOB they discuss it? (to save me the time to try to wade through it)

[Doghouse]

Sure - Chapter 15, Section VIII, Part A, #4 (Distributions).

[austin3515]

I would take the position that the plan called for the allocation as of the last day of the plan year and you just didn't go to the step of moving money around within the plan. In my opinion nothing magical happens when you move money from the forfeiture account to the participant account. For example, should a pooled plan be treated as in compliance and a daily val plan treated as disqualified for precisely the same situation? I think not!

[Doghouse]

In re-thinking (and looking it up in EOB ) I agree:

3. Crediting rules for forfeitures. Forfeitures are annual additions for a limitation year if they are allocated as of any date in that year. See Treas. Reg. §1.415©-1(b)(6)(i)(D).

3.a. Example. For the limitation year ending September 30, 2010, there are forfeitures totaling $18,000 under a profit sharing plan. To the extent those forfeitures are allocated for the year ending September 30, 2010, they are treated as annual additions for that year, even if the actual determination of that allocation occurs after the close of the plan year. For example, if the plan administrator does not actually perform the allocation until May 10, 2011, the forfeitures allocated as of the September 30, 2010, allocation date are still treated as annual additions for the limitation year ending September 30, 2010, even if May 10, 2011, would be later than the section 415 crediting deadline described above that applies to employer contributions.

[BG5150]

Good Doggie!