Using own forfeiture for own top heavy min

[TPApril]

Terminated participant took final distribution. Nonvested portion has been forfeited.

As this was the only non-key participant, the full forfeiture account balance is from this participant.

Plan has since decided to make a PS contribution for the prior plan year, and this participant is due a top heavy min 3% contribution.

Plan doc allows forfeitures to be used towards top heavy minimum contributions.

Doesn't seem to feel right, but any reason the top heavy minimum contribution cannot come from participant's own forfeitures?

 

[RatherBeGolfing]

You didn't bring it up, but no issues with partial plan term, right? Asking since "this was the only non-key participant"...

Assuming forfeiture was proper, I don't see a problem using it to fund the THM.

[TPApril]

7 hours ago, RatherBeGolfing said:

You didn't bring it up, but no issues with partial plan term, right? Asking since "this was the only non-key participant"...

Assuming forfeiture was proper, I don't see a problem using it to fund the THM.

She quit, was not laid off or terminated by employer.

[ratherbereading]

No issue with that. 

[RatherBeGolfing]

7 hours ago, TPApril said:

She quit, was not laid off or terminated by employer.

Then no issues with using the forfeiture.  In fact, you would probably create an issue if you don't use the forfeiture when available.

[Bri]

I've seen plan documents that say if the person's going to share in the allocation, they don't actually forfeit the nonvested portion yet....so maybe just spot-check your section there, too.

[TPApril]

4 hours ago, Bri said:

I've seen plan documents that say if the person's going to share in the allocation, they don't actually forfeit the nonvested portion yet....so maybe just spot-check your section there, too.

Indeed, if the terminated participant had not taken their vested distribution, the forfeited amounts would not be available and the Plan Sponsor would need to make the actual cotnribution.

[Jakyasar]

Even if the balance is less than force-out limit? Just curious.

[TPApril]

8 minutes ago, Jakyasar said:

Even if the balance is less than force-out limit? Just curious.

Yes the vested balance is under the force out limit, when considered by itself. 

However, intent is to do a final rollover of vested balance of top heavy contribution since we are still within 180 days of Special Tax Notice.

[David D]

In smaller companies I have always told my clients to keep the employee resignation letter on file since IRS takes the position that every termination is employer initiated.  It  helps in the event of an audit in the future.

[justanotheradmin]

Can you clarify the timeline?

Is this right? 

Person terminates in 2026, take a distribution in 2026, non-vested portion of account forfeited in 2026. Employer contribution, including top heavy minimum being made for 2025.

If that is the case - then I would say no. The plan can't allocate forfeiture or use forfeiture towards a year prior to the year in which the forfeiture occurs. 
 

[TPApril]

On 6/1/2026 at 6:45 AM, justanotheradmin said:

Can you clarify the timeline?

Is this right? 

Person terminates in 2026, take a distribution in 2026, non-vested portion of account forfeited in 2026. Employer contribution, including top heavy minimum being made for 2025.

If that is the case - then I would say no. The plan can't allocate forfeiture or use forfeiture towards a year prior to the year in which the forfeiture occurs. 
 

Your timeline is correct.

You bring up a great question, but are you sure about that?

To me the question wasn't so much about plan year of forfeiting and forfeiture use, so much as the situation of using one's own forfeiture to fund one's own top heavy contribution.

[AlbanyConsultant]

I agree with @justanotheradmin - for any 2025 allocations, you should only be using forfeitures in the account as of 12/31/25 (presuming that's the end of the plan year).

That being said... especially in plans with forfeitures happening all the time, good luck telling your plan sponsor to only use $X when the recordkeepers make it so easy to use whatever is sitting there.  And I've had auditors who let that go on the theory that as long as it's being used, that's OK.  So in general I wouldn't stress over it.

But in this case, since this is the only non-key, I'd really want to play it 'by the book'.  Dear plan sponsor, you have to deposit some money but the good news is that (a) some of it will be forfeited and (b) you'll get to use all that sweet, sweet forfeiture in about seven months.

[justanotheradmin]

On 6/11/2026 at 2:06 PM, TPApril said:

Your timeline is correct.

You bring up a great question, but are you sure about that?

To me the question wasn't so much about plan year of forfeiting and forfeiture use, so much as the situation of using one's own forfeiture to fund one's own top heavy contribution.

I am sure.
As of 12/31/2025 the forfeiture account does not have those dollars in it, not accrued or as actual cash. They are not available to be allocated as part of the benefits in the trust since they do not exist for the year in which you are accruing them for (using them for). 
If you don't believe me, I suggest you read the section of the plan's document that governs the use of forfeitures. If it addresses them clearly, it will say that forfeitures are to be used in the year in which they occur (2026) or the year following ( 2027) or some combination thereof, depending on that plan's specific provisions. This usage mirrors the various rules that apply to accruals in a trust, allocation of dollars, holding accounts, and the specific exception that grants forfeiture dollars a little more flexibility than regular assets in a trust, but there are still restrictions and rules that must be adhered to for the trust to maintain its tax-qualified status.