TH Test Balance question

[BG5150]

Doing a 2016 TH test (balances a/o 12/31/15)

We have someone who termed July 1, 2015 and took her balance in September 2015.  She was 60% vested.  She was paid $6,000 and forfeited $4,000.

How much do I add back in to my TH test?  Just the 6k or the full 10k?

[Mike Preston]

Two separate questions. 1) You add back the in-service distribution amount ($6,000). 2) You include the $4,000 as an account balance for this individual if not forfeited a/o 12/31/15.

Of course, if the $4,000 is forfeited a/o 12/31/2015 it then will be a part of other participant account balances.

Hence, you will always add back the full 10k, but it may be a part of one participant's not yet forfeited account or it will be a part of the other participant account balances.

[BG5150]

So, the forfeiture account gets added to the denominator?  I always excluded it from my calculations.

[Mike Preston]

I suppose it is possible that your document provides for the forfeiture to take place on the day that the distribution takes place and that the forfeiture re-allocation doesn't take place until the next year.  I thought the IRS did away with that practice, but maybe not.

[Tom Poje]

if you only add it to the denominator, you are saying "There is no way a key employee will receive any of this" which, I am not sure you can say.

probably better to exclude entirely, and treat it as a 'contribution' the company hasn't made yet (or, a profit sharing that will be allocated after 12/31, which generally is excluded anyway)

[BG5150]

The odd thing is, if the participant kept the money in the plan, the entire amount would be in the denominator.  But since she took a distribution, only 60% of it is now being considered.

[Belgarath]

I'd first cycle back to Mike's comment. So what's the scoop on when your document provides for use of forfeitures? Ours, for example, provides that they must be "disposed of" no later than the end of the Plan Year following the Plan Year in which the forfeiture occurs. If the forfeitures aren't being used to pay expenses, but are allocated as of 12/31/2016, I'd count 'em. If not used until 2017, then I wouldn't.