Using Forfeitures for Participant Education - specifically Financial Wellness

Because of the recent litigation regarding usage of forfeitures, I wanted to get some back up for how this is being viewed in 401(k) and other participant directed account plans.  Forfeitures must be used according to the plan document and most big providers have the standard "pay plan expenses" and reduce employer contributions.  Some also have the prorata allocation.

Given all of that, we have seen it recommended that the forfeitures be used for participant education, specifically financial wellness.  That also being a way to deplete the forfeiture account when the plan sponsor is paying the fees and/or does not have contributions to reduce.

Any thoughts on this being a reasonable "plan expense" noting here that I have reviewed §2550.404a-5 as well as the settlor vs permitted plan expenses the DOL has opined on and it does indicate educational seminars and retirement planning software is permitted. 

So if it is permitted - does the financial education need to be specific to retirement planning or is overall financial wellness ok or is there some gray area?  

Thanks!

On the surface, it appears permissible, in my non-legal, non-investment professional opinion. However, I think you may need to be exclusive to who financial wellness education is provided. If you provide to all employees rather than only participants or eligible employees, then I think that could be a problem.

Thanks Kenneth!  For the record, I do not like it given the landscape of forfeiture litigation.  But, I see this as a new strategy popping up and wanted to hear what others thought.

21 hours ago, 401kology said:

given the landscape of forfeiture litigation

Which is crazy. Maybe the answer to that is to specify one permitted use for forfeitures in a plan.  

In those ERISA fiduciary-breach complaints, the plaintiffs could assert a breach of exclusive-purpose loyalty because the plan’s governing documents granted the fiduciary discretion about how to use a forfeiture account.

The plaintiffs assert that the fiduciaries selfishly chose to benefit their employers by offsetting employer-provided contributions when the fiduciaries could have chosen to meet plan-administration expenses, lowering the charges on participants’ accounts.

But what if a plan’s document specifies the order in which to use forfeitures? For example:

1)    offset contributions (if any);

2)    pay or reimburse plan-administration expenses;

3)    allocate the remainder among participants’ accounts.

Observe that this does what the sued fiduciaries did, but makes it obedience to the plan’s document (rather than an arguably disloyal use of discretion).

So I learn something:

Are there reasons a plan sponsor would not want that provision?

Are there reasons a fiduciary would not follow that provision?

I'm thinking of suggesting a client amend its plan to specify this; any reason not to specify?

The concept of specifying the order in which forfeitures is okay but be careful about where you put the "re-allocate to participants" choice.  I recommend putting it at the bottom of the list.  Re-allocating forfeitures is treated the same as if the employer made an employer contribution which can impact things like NEC coverage, gateways, top heavy contributions, creation of a lot of small balance accounts and more.

Include items like restoration of forfeitures for rehires, corrective actions including QNECs, and other similar situations where an employer puts money into the plan.  It also makes sense to prioritize match contributions over NEC contributions.

Thank you!