Seeking Clarity on Year-End Deadline for Using Forfeitures

[401 Chaos]

Would welcome thoughts on this:  Large 401(k) Plan with significant assets and forfeitures throughout the year has elected to use forfeitures to reduce employer matching contributions and expenses.  Although significant, all the forfeitures can generally be exhausted by covering employer matching contributions except for late in the year forfeitures that administratively aren't fully captured until early in the following year.  Plan uses Relius volume submitter form which provides that all forfeitures should be allocated no later than the end of the plan year following the year in which forfeitures occur.

I'm looking at the ERISA Outline Book and it's references to the Spring 2010 edition of the IRS's Retirement News for Employers.  In that, the IRS says the following:

1.  No forfeitures in a suspense account should remain unallocated beyond the end of the plan year in which they occurred.

2.  No forfeitures should be carried into a subsequent plan year.

3.  For those plans that use forfeitures to reduce plan expenses or employer contributions, there should be plan language and administrative procedures to ensure that current year forfeitures will be used up promptly in the year in which they occurred or in appropriate situations no later than the immediately succeeding plan year.  

So, I generally interpret that to mean you need to use up the forfeitures quickly and apply them to the extent you can by the end of the plan year in which they occur; however, if the plan docs say it is ok, it is generally permissible for some amount of forfeitures to spill over to the next plan year where not administratively feasible to allocate and use to offset matches 100% by end of the plan year in which they occurred (e.g., forfeitures happening in November or December).

Does that seem generally acceptable / correct?

Plan sponsor is asking if it can break with prior tradition and not use any of the 2018 forfeitures to cover matches and expenses in November and December and instead carry full amount (so 11 months of forfeitures) over to 2019 then use in Q1 or Q2 in 2019.  I think some plans do that routinely and not sure the IRS would have huge issue but it seems counter to the general guidance here.  Am I off base?  (Assume that the lagging forfeitures from late 2017 carried over into 2018 were applied to expenses so have been used.)

Thanks

[chc93]

I don't have any cites, but we have many ERISA attorney volume submitter documents for our plans that use forfeitures in the year following the year in which the forfeiture occurs.

[401 Chaos]

Thanks very much.  Yes, we routinely see plans with that same sort of language and plans that take advantage of that to sort of "drag out" use of the forfeitures to late the following year.

Just trying to understand what "appropriate situations" means in the IRS guidance here and whether anybody has ever had the IRS raise questions or concerns with the delay.  While I realize #3 is intended as an exception where forfeitures are used to reduce contributions or expenses rather than re-allocated, I find it difficult to square items 1 and 2 in the guidance with item 3 and it's similar directive to use forfeitures promptly in the year they occur.  Given the prevalence of using forfeitures to offset contributions or expenses, it seems this is sort of the exception that swallows the rule.  That said, I don't recall ever hearing or seeing the IRS take action.  Curious if anyone has had a different experience.  Thanks.