ER Forfeitures - ongoing balance

[TPApril]

Plan Doc says profit sharing forfeitures are to be used to pay expenses, or reduce employer contributions. Plan Sponsor declared $0 profit sharing contribution for last year, but there remains a balance after payment of fees.

Makes me uncomfortable but can that balance remain sitting in the forfeiture account until a contribution is declared? Perhaps a contribution for that amount should be declared for 12/31 of last year equal to the forf account balance at that date? With no actual deposit occuring, would there be any affect on Plan Sponsor's non-retirement plan accounting?

[ESOP Guy]

I would ask the Plan Sponsor to go back and declare a PSP contribution for exactly what is left so you can allocate the forfeitures.  I agree they shouldn't have any objection to do that. 

[NJ Mike]

I would leave it in forfeiture account.  If document says reduce and contribution is $0, you can't reduce it.  Mike

[RatherBeGolfing]

14 minutes ago, NJ Mike said:

I would leave it in forfeiture account.  If document says reduce and contribution is $0, you can't reduce it.  Mike

The IRS would disagree.  

[TPApril]

The Fidelity VS plan doc really provides minimal guidance on the treatment of Forfeitures.

[RatherBeGolfing]

1 hour ago, TPApril said:

The Fidelity VS plan doc really provides minimal guidance on the treatment of Forfeitures.

There should be language in the document stating when forfeitures must be used.  It will probably state something along the lines of "no later than the year following forfeiture".

As discussed above, you can allocate just enough use the rest of the forfeiture, but you can't use a $0 allocation to keep from using the forfeiture.  This shouldn't be an issue as long as you are not relying on "safe harbor only" to be exempt from top heavy rules.

Another possibility could be to send the client an invoice for next years work now.  While not official guidance, the IRS did say at a conference Q&A a few years ago that if invoiced and paid in the year when the forfeiture needs to be used, it could be used to pay for next year's expenses. 

 

 

[TPApril]

Next year's invoice will still leave a significant balance so just as well not issue it.  I find the plan doc so limited. This is what it says:

11.09. Application of Forfeitures. Any forfeitures occurring during a Plan Year shall be applied to reduce the contributions of the Employer. Notwithstanding any other provision of the Plan to the contrary, forfeitures shall first be used to pay administrative expenses under the Plan, if so directed by the Employer. To the extent that forfeitures are not used to reduce administrative expenses under the Plan, as directed by the Employer, forfeitures will be applied in accordance with this Section 11.09.
 

[ESOP Guy]

So is the Sponsor not willing to declare a contribution equal to the remaining forfeitures? 

[TPApril]

We haven't presented the circumstances yet though we anticipate the original idea of the contribution equalling the 12/31 forfeiture balance. New account and just trying to review options 1st.

[RatherBeGolfing]

3 hours ago, TPApril said:

Next year's invoice will still leave a significant balance so just as well not issue it.  I find the plan doc so limited. This is what it says:

You wouldn't have to bill the entire expense in advance.  You would just bill enough to use the leftover forfeiture.  I still favor a contribution equal to the forfeiture amount, as long as it doesn't cause top heavy issues.

[TPApril]

oops, I meant the invoice is far smaller than the remaining forfeitures

[TPAJake]

Can you amend the plan?  Higher invoice for you, more flexibility for forfeiture use in the future.  I'm guessing you did not restate this Plan onto your own Document when you took it over?

[Bird]

Is there some reason not to allocate the forfeitures?  I feel like I'm missing something.  I understand not wanting to create small balances, but it appears that's not a problem. 

Getting back to your original post, no, allocating forfeitures has no impact on the business accounting. 

I don't see that amending the plan will accomplish anything; your choices will still be to pay expenses or allocate. 

[stephen]

22 hours ago, RatherBeGolfing said:

As discussed above, you can allocate just enough use the rest of the forfeiture, but you can't use a $0 allocation to keep from using the forfeiture.  This shouldn't be an issue as long as you are not relying on "safe harbor only" to be exempt from top heavy rules.

Creating small balances due to allocating a small forfeiture balance could be an issue - though it doesn't seem to be the case here.

[RatherBeGolfing]

4 minutes ago, stephen said:

Creating small balances due to allocating a small forfeiture balance could be an issue - though it doesn't seem to be the case here.

Creating small balances can be a pain, no question about it.  But it really doesn't change the fact that the forfeiture needs to be used, either for fees or as an allocation.  Where it really causes an issue is where you have top heavy plan that relies on the exemption.  Having to allocate thousands in top heavy minimums because of a few hundred in forfeiture allocations can really sting... 

[Luke Bailey]

How about amend the plan for current year (2017) to make a one-time allocation as of 9/30/2017 of, e.g., 1/5th or 1/10th or whatever of amount to the lowest-paid 5, 10, whatever eligible employees?

[TPApril]

ok now I get it, Plan Sponsor's intention was to use the PS forf to fund the Match

[Luke Bailey]

That works too, of course.

[TPApril]

I'm not familiar with using Forfeitures from one Source to offset contributions from another Source, even if both Sources are Employer contributions

[RatherBeGolfing]

Its fine, unless the document states otherwise.