Forfeiture Reversion to Employer (sort of) ?

[legort69]

The client is the plan administrator for a multiple employer plan, and they currently do not have a good system for administrating forfeitures and crediting the plan adopters on their payroll invoices.

They asked if we could facilitate the forfeiture process and issue a check for the use of the forfeiture balance each quarter directly  back to the adopter in lieu of taking the forfeiture credit  at the time of the contribution with the ER contribution.

Of course the amount to be refunded would be limited to their ER contribution, (but not to exceed the available forfeiture balance).

Will administrating forfeitures in this manner violate the rules of forfeitures being reverted back to employers?

Thanks for any input you have on this.

[ERISAAPPLE]

Yes.  

[JamesK]

21 hours ago, ERISAAPPLE said:

Yes.

Indeed.  What argument could/would you make that it is not a reversion, @legort69?

[legort69]

Its really for administrative convenience. If the client pays the match but could have credit the funding from the forfeiture, then why can't we just return the forfeiture balance to the client (up to the amount of the ER contribution).

In the end, its really the same result.

Client funds less to the plan and uses forfeiture account, or client funds full amount and requests the forfeiture back.

[RatherBeGolfing]

14 minutes ago, legort69 said:

Its really for administrative convenience. If the client pays the match but could have credit the funding from the forfeiture, then why can't we just return the forfeiture balance to the client....

Why violate the rules instead of fixing the internal process like you are supposed to? 

[ESOP Guy]

24 minutes ago, legort69 said:

In the end, its really the same result.

There are a lot of areas in field where that is true and the answer really is because the law says otherwise.  The risk simply isn't worth the upside to try and argue the results are the same. 

The fix seems so easy as others have pointed out. 

[CuseFan]

Agreed. The only time you are allowed to remove forfeitures from a DC plan and give back to employer, if my memory serves me correctly, is 415 suspense/forfeitures upon plan termination - not something that happens every day.

[legort69]

Tough crowd. Okay, was worth a shot.

thanks everyone!

[ERISAAPPLE]

We're tough because from day 1 we have learned, and the case law is clear, a plan simply can't return plan assets to the employer except in permitted circumstances.     This isn't one of those circumstances.