Target Benefit Plan forfeitures

[AdKu]

I've one client with target benefit plan and I couldn't find  forfeiture use specifics in the reg. 

Can forfeitures in target benefit plan be used If the plan doc. states, "

“Administrator may elect to use any portion of the Forfeiture Account to pay administrative expenses incurred by the Plan. The portion of the Forfeiture Account not used to pay expenses will be used first to restore previous Forfeitures resulting from rehired Participants, then to restore Forfeitures resulting from missing Participants or unclaimed benefits. Any remaining amount will be used to reduce Employer contributions.”

[Belgarath]

Not sure what you mean by "used" - under the language you have posted, the forfeitures ARE being used. Paying expenses is voluntary, the next two uses (if any left over after paying expenses, if they choose to pay expenses) are mandatory, in the order as listed in the pan language above.

[Bird]

Your hesitation about using them is because you can't find anything in the regs specifically about using them in a target benefit plan?  Yes, they can be so used.  

[Doc Ument]

At one time you could not.  My recollection is that the IRS issued the Ruling subsequent to a statutory or regulatory change made during the GUST remedial amendment period, and that the Ruling covered all MP plans, not just target plans.  My cryptic personal cheat sheet suggests a strong possibility that the authority is likely to be RevRul 2002-42, but  I can't guarantee it.  (If the Ruling was before that one, then that one should mention it in passing in the "background" section of 2002-42.)  I forget what the underlying broader change was, but forfeitures went along for the ride (as did, I believe, mergers of MP plans into PS plans).

[K2]

A target benefit plan is a money purchase plan, so forfeitures can't be reallocated.  They can only be used as the document language you cited states, i.e., to reduce contributions, reinstate accounts or pay expenses.

[Doc Ument]

6 hours ago, K2 said:

A target benefit plan is a money purchase plan, so forfeitures can't be reallocated.  They can only be used as the document language you cited states, i.e., to reduce contributions, reinstate accounts or pay expenses.

The 2013 Edition of ASPPA's ERISA Outline Book disagrees, as does the terms of some preapproved plans that I use.  Since I can't expect everyone to have the 2013 hard copy edition of EOB in front of the them, it should still be in Chapter 3A, Section II, in a Part called "Forfeitures - using forfeitures to provide additional allocations to participants."  Example 2.b.  "Example - money purchase plan..."

On the next page in that 2013 EOB section, it states that the "safe harbor" rules for nondiscrimination testing require target benefit plans to use forfeitures to reduce contributions.  See 1.401(a)(4)-8(b)(3)(i)(B).  As a result, few target benefit plans will treat forfeitures as additional employer contributions because most target benefit plans are designed to comply with the safe harbor rules."   I conclude that even a target plan may do so if it is willing to do A4 testing.

EOB goes on to say:  "Historical Note:  Prior to 1986, IRC Section 401(a)(8) prohibited a MP or target benefit plan from treating forfeitures as additional employer contributions.  ...TRA'86 amended IRC 401(a)(8) to limit that rule to defined benefit plans."

I conclude that it has been permissible to reallocate forfeitures in any MP plan since TRA'86, since IRC 401(a)(8) continues to contain only a prohibition against reallocating forfeitures only to DB plans.

[AdKu]

Thank you all!