IRS Questioning Vesting

Hi,

Thank you as always for all the knowledge and help. A PS Plan is under audit. The agent is questioning why three participants  (terminated in 2012 )are shown with 100% vesting if based on their years of service they should only be 60% vested. The answer is correct, their vested percent should only be 60% , however, the unvested amounts were forfeited and used to reduce the contribution back in 2016. Therefore, their remaining account balance  is all vested and that is why the report shows them with 100% vested balances. Question- Can this response  open up any potential issues?   Thank you.

Exactly, although I would expect an IRS agent to recognize that situation on their own.

1 hour ago, CuseFan said:

Exactly, although I would expect an IRS agent to recognize that situation on their own.

Thank you CuseFan. I agree with you, unless since the Audit is for 2019 so the agent only sees the balance being 100% vested as of 2019 and doesn't see the allocation of the forfeiture that happened a few years prior? --(as can't figure out otherwise why they would ask this)

3 hours ago, CuseFan said:

Exactly, although I would expect an IRS agent to recognize that situation on their own.

Those agents started to retire in the 2000's...  As for this current crop, they have their checklists to satisfy...😵

Yup, audit by checklist, gotta love it (or not)! 

On 4/7/2022 at 9:57 AM, CuseFan said:

Yup, audit by checklist, gotta love it (or not)! 

CuseFan and Nate thank you as always. We noticed that that there are 2 other participants who forfeited their unvested balances and their remains balances are now 100% vested. However, inadvertently, we did not change these other 2 participants vesting to 100%. 

When we respond to the IRS explaining that the 3 questioned are 100% due to the forfeitures, should we also point out that we noticed 2 other participants that should be 100 vested. Or is it better not to point it out, and just fix it on our end,  and hopefully they won't pick up on it. Can you self correct during an audit, as if not, then maybe better not to point it out?   Thank you.

I guess if they come back and ask us to show the calculation of the forfeiture, we then will show the 2 additional that forfeited and only then will mention that we noticed that these 2 others should also be 100 vested, but otherwise don't mention it, as to not point it out?

I would just fix them and move on - it's only a reporting error. Unless additional amounts were forfeited applying the vested percentage a second time, which does not seem to have happened, nothing has been taken away from the participant.

On 4/11/2022 at 8:13 AM, CuseFan said:

I would just fix them and move on - it's only a reporting error. Unless additional amounts were forfeited applying the vested percentage a second time, which does not seem to have happened, nothing has been taken away from the participant.

CuseFan Thank you so much!  Yes, correct, we did not apply a second forfeiture (double dip). Rather, as you are saying, we are just under reporting the vested balance of these two other  participants. As their account balance is correct, however, their vested balance should show the same amount as their account balance (100% vested). They did not receive their money , so they were not underpaid......just wondering can--if the IRS would pick up on this--can the IRS say that since their vested balance is to low in a sense we are potentially could have taken money from them that they are entitled to. Then again, we can always show that for the following year on the report we fixed their vested balance to 100% percent.

I still think just correct the reporting error and move on. If IRS questions - then the answer is yes, we saw that and corrected to report the proper vested % and $, no harm no foul on the participant.

20 minutes ago, CuseFan said:

I still think just correct the reporting error and move on. If IRS questions - then the answer is yes, we saw that and corrected to report the proper vested % and $, no harm no foul on the participant.

Thank you. Your clear, and concise way of thinking is always appreciated,

4 minutes ago, SSRRS said:

Your clear, and concise way of thinking is always appreciated

If only my wife felt that way - LOL!