Use of Forfeiture Account Balance with Terminating Plan

[waid10]

Hi. Client is terminating a 401k Plan. There is a sizable amount in the forfeiture account. Even after paying expenses, there will be a balance left over. The document says that forfeitures are allocated first to restore previously forfeited amounts to participant accounts. Thereafter, remaining forfeitures are used to:

• offset Plan expenses
• reduce future matching contributions
• reduce future nonelective contributions

Since we are terminating, and thus there will not be any future contributions, how should we allocate the remaining forfeiture balance? Pro-rata to participants according to??

Thanks.

[Bill Presson]

You should follow what the document says. Likely the forfeitures should have been used in previous years, but can't roll back the clock.

So eligible employees likely getting a little bump.

[waid10]

Agreed. How do you recommend we do the allocation?

[Lou S.]

Either have the client declare a PS contribution (or match if the plan allows for discretionary match) equal to the amount of forfeitures and off set the contribution by the reallocated forfeitures while following the terms of the document?

[Paul I]

If need be, you can include in the termination amendment an allocation formula that cleans up the forfeitures.