Vesting at Plan Termination

[PensionPro]

Does someone here have insight or experience into whether the IRS would require full vesting for participants who incurred 5-BIS but the unvested amounts were not forfeited?  i.e. the unvested amounts were eligible to be forfeited but were not actually forfeited.

Thank you for your thoughts!!

[Bri]

Wouldn't the IRS go after the sponsor for failure to deal with the forfeitures properly when they should have?   Gotta think they'd want THAT for the other participants' sakes, like if they are instructed to reallocate.

[Peter Gulia]

It might help to distinguish between when an amount becomes forfeit and when the amount is segregated from the participant’s individual account.

If the participant did not yet receive a distribution, might the plan’s administrator now segregate the forfeited amounts and credit those amounts to the forfeiture account?

Whether slowness in segregating forfeitures affects other participants might turn on the plan’s provisions, especially if nondiscretionary, about using forfeited amounts.

Imagine the documents governing the plan provide that the order is:

first, a forfeiture amount sets off the employer’s obligation to pay a nonelective or matching contribution;

next, a remaining forfeiture amount (if any) is used to pay plan-administration expenses (or to reimburse the employer for its advance on expenses the employer was not obligated to pay);

last, a remaining forfeiture amount (if any) is allocated to participants’ accounts.

For many plans, the use of forfeiture amounts regularly stops at step one. So, a delay in segregating a forfeiture might burden only the employer.

But I concur with Bri that a delay in segregating a forfeiture matters more if the amount would or might have been used for allocations to participants’ account.

This is not advice to anyone.