Can forfeitures be used for late deferral corrections?

[BG5150]

Can a plan's forfeiture account be used to fund QNECs due from late deposit of deferrals and the attendant earnings?

[AMDG]

Check the plan document.  It's typically specific regarding the allowable uses of forfeitures.

 

[C. B. Zeller]

14 minutes ago, BG5150 said:

QNECs due from late deposit of deferrals and the attendant earnings?

What correction method are you referring to? Late deposits are usually just corrected by making the deposit with lost earnings. It is not a QNEC.

EPCRS does provide for corrections with QNECS for improper exclusion from a 401(k) plan, or failure to implement a deferral election.

Regardless, if the plan adopted the changes made by the 2018 amendments to the regulations, then forfeitures can be used to fund QNECs. See https://www.irs.gov/retirement-plans/issue-snapshot-plan-forfeitures-used-for-qualified-nonelective-and-qualified-matching-contributions

[ratherbereading]

I believe the IRS released final regs that employers can use forfeitures to fund QNECs and QMACs as well as SH contributions.  Our documents allow for all that.   

[BG5150]

The deposits were made, just not the earnings yet.

Recordkeeper says it has permission from its legal team to use the forf account to fund the earnings.

Where are the regs that talk about interest on late deposits?  I don't see anything in EPCRS about it.

[C. B. Zeller]

It's in VFCP. The plan document probably also has some language about timing of deposits, so you can rely on the general principles of EPCRS to put the plan back in the same situation it would have been had the failure not occurred.

Forfeitures can be used to reduce contributions, or allocated as an additional contribution. However lost earnings are not a contribution. I say you can't use forfeitures to fund lost earnings.