Reversion to Employer from a 401(k) Plan

[bzorc]

Has anyone ever encountered the situation where an unused forfeiture account reverts to the employer on plan termination? Got asked this question today and in all the years I've been a TPA, I've never seen it. Thanks for any replies.

[Lou S.]

Don't think that's allowed.

[Bri]

If it's small enough to cover a final admin invoice, that's not atypical since the plan may reimburse the sponsor's direct payment of those expenses.

[CuseFan]

I think the ONLY way it can revert is if it cannot be allocated to anyone because of 415 limits and cannot otherwise be used to pay eligible expenses.

[Peter Gulia]

What if a forfeiture balance is used to reimburse the employer for its payment of a proper plan-administration expense?

What if it's not only a final-administration expense but some plan-administration from the recent past?

If so, how much into the past may the fiduciary reimburse the employer?

[Lou S.]

37 minutes ago, Peter Gulia said:

What if a forfeiture balance is used to reimburse the employer for its payment of a proper plan-administration expense?

What if it's not only a final-administration expense but some plan-administration from the recent past?

If so, how much into the past may the fiduciary reimburse the employer?

Sounds like some good Fiduciary Guidance Questions.

Assuming the Plan allows for payment of expenses with forfeitures, most do but some do not. I think would be pretty comfortable for non-settlor fees for the current year. I think I might be comfortable with non-settlor fees for the prior year if billed in the current year. I think any further back and you're getting on very thin ice and would want ERISA counsel to opine.

 

[rocknrolls2]

I think Lou S is definitely on the right track. While 415 excess amounts in a suspense account could theoretically revert (but should be either allocated among all other participants or applied to reimburse administrative expenses, the guidance is that this suspense account is not supposed to linger around accumulating assets. Considering the 415 suspense account with the IRS proposed regs on forfeitures, there is very little wiggle room to go back and apply such amounts to administrative expenses incurred more than one year in the past. Is the client going for a determination letter on plan termination? If so, and there is a sizable amount of assets, you are likely to encounter serious push-back from the IRS.