Forfeiture upon death permitted in DC/401(k) plan?

[Guest mo again]

Am I correct that IRC 411(a)(3) permits a plan not subject to QJSA requirements (i.e. a profit sharing plan), to forfeit account balances attributable to employer contributions upon death of the participant, regardless of the participant's years of service?

Also, does anyone know for sure if participant 401(k) deferrals are deemed attributable to employer contributions or not for this purpose? It wouldn't seem right, but what do I know.

Thanks in advance for any thoughts.

[Guest ak]

No. According to the IRS a death forfeture does not apply for a surviving spouse benefit required to be provided by the QJSA/QPRSA rules or the spousal benefit for plans exempt from such rules. See 1.401(a)-20 Q&A 13

Elective deferrals cannot be forfeited upon death.

[Guest michaelv]

It would seem unlikely that this could be true. If the participant had 10 years of service and died, would they revert to 0% vesting? That obviously can't be right.

It's been my understanding that account balances become fully vested upon death.

[Guest mo again]

Thanks, ak, I agree. Do you believe that it is completely forfeitable if the beneficiary is not the surviving spouse?

(as in the case of an unmarried participant)

[John A]

First: 401(k) deferrals may not be forfeited due to death (which is allowed for other sources under 411(a)(3)).

From 1.401(k)-1©(1)(i):

"A contribution that is subject to forfeitures or suspensions permitted by section 411(a)(3) does not satisfy the requirements of this paragraph ©."

Second: The spouse portion of a QJSA may also not be forfeited due to death.

Third: However, I believe other contributions (like a straight profit sharing contribution that is not subject to QJSA rules) may be forfeited upon death if the plan so provides. Although most plan documents I've seen provide for 100% vesting upon death, I do not believe this is required.

[Guest mo again]

In truth I find Q-13 confusing. Specifically the reference to the "spousal benefit" described in 401(a)(11)(B)(iii), which delineates the requirements for a plan to be exempted from the joint and survivor requirements. I am not certain whether the "spousal benefit" is the one available before any spousal waiver, or after. However, what would be the point of permitting a married participant to declare a non-spouse beneficiary at all if that person will never get anything? In such a case, presumably the plan would not permit a non-spouse beneficiary designation at all. The question still remains with respect to an unmarried participant. But I think it is forfeitable in such a case.

[Guest JimD]

If the plan provides for any forfeiture upon the death of a participant it can only extend to the non-vested portion. So a participant who dies and is 80% vested may forfeit 20% if the plan provides but certainly not 100%.