Forfeiture accounts in MEPs

I have a plan that is a MEP and the assets are all in one big account at the recordkeeper.

 From time to time there are forfeitures from participant accounts due to distributions.  Those forfs go to the forfeiture account.  But it is also just one account for the plan, not broken out by company.

 How can/must those forfeitures be used?  That is, can the forfs from one company be used to cover the contribution or fees of another?

 From my limited research on the issue, people suggest the forfeitures from each of the companies be used only for the respective entities.  However, the regs are silent on the issue.  It seems the IRS did not contemplate this situation.

I think the regs do address it. 1.413-2(c) says that the exclusive benefit rule will apply to a MEP "in the same manner as under section 413(b)(3) and §1.413-1(d)" (e.g., collectively bargained plans).

1.413-1(d) says (emphasis added):

Quote

(d) Exclusive benefit. Under section 401(a), a plan is not qualified unless the plan is for the exclusive benefit of the employees (and their beneficiaries) of the employer establishing and maintaining the plan. Other qualification requirements under section 401(a) require the application of the exclusive benefit rule (for example, section 401(a)(2), which precludes diversion of plan assets). For purposes of applying the requirements of section 401(a) in determining whether a plan subject to this section is, with respect to each employer establishing and maintaining the plan, for the exclusive benefit of its employees (and their beneficiaries), all of the employees participating in the plan shall be treated as employees of each such employer. Thus, for example, contributions by employer A to a plan subject to this section could be allocated to employees of other employers maintaining the plan without violating the requirements of section 401(a)(2), because all the employees participating in the plan are deemed to be employees of A.

I read this to say that forfeitures arising from contributions by one employer can be freely allocated towards participants of another participating employer. So there is no need, under the regs, to track each participating employer's forfeitures separately.

That said, there is nothing that says you can't track forfeitures separately, and the participating employers may prefer to do it that way for their own purposes.

Whichever way they want to do it, it might be wise to be explicit about it in the plan document.

Does the participation agreement for each sponsor address it?  That feels like something where any discretion you might have, may already have been addressed within the tiny print.

Whether forfeitures are allocated without regard to which participating employer’s participants generated the forfeitures or by some specified subsets is stated by (or to be interpreted from) the documents governing the plan.

Are you able to set up a "forfeiture participant" for each entity? If so that might fix your issues.

22 hours ago, C. B. Zeller said:

I think the regs do address it. 1.413-2(c) says that the exclusive benefit rule will apply to a MEP "in the same manner as under section 413(b)(3) and §1.413-1(d)" (e.g., collectively bargained plans).

1.413-1(d) says (emphasis added):

I read this to say that forfeitures arising from contributions by one employer can be freely allocated towards participants of another participating employer. So there is no need, under the regs, to track each participating employer's forfeitures separately.

That said, there is nothing that says you can't track forfeitures separately, and the participating employers may prefer to do it that way for their own purposes.

Whichever way they want to do it, it might be wise to be explicit about it in the plan document.

Sec 1.413 is for union plans, though.

1.413-1 is collectively bargained plans. 1.413-2 is MEPs. For this specific question, 1.413-2(c) refers to 1.413-1(d).

I agree to the extent that those of you who have said that the forfeitures can be used by other participating employers. One thing that has not yet been raised by this thread is that the IRS concept of what is a plan or a separate plan, depends upon whether the pool of money constituting the account balances are segregated. If they are, the IRS considers each segregated pool of money to be a separate plan. See the IRS Regulations at 1.414(l)-1. In my view, you need to read the 1.413-2 regs in combination with the 1.414(l)-1 regs to arrive at the correct result.