Forfeiture Account Use

If a company paid a qualified plan expense directly (i.e., audit fees), are they able to be reimbursed from the plan's forfeiture money? I have had some clients that have done this with no problem, but one recordkeeper is telling a client it is not allowable. Thoughts?

Unless the plan document does not allow or such request for reimbursement is not timely (asking in 2025 to be repaid for expense paid in 2024), I see no problem. Could be the RK just doesn't want the assets leaving the plan.

Whatever ERISA and the Internal Revenue Code might permit a plan to provide, there might be three layers of documents to read.

Do the plan’s governing documents provide for using forfeitures to pay or reimburse plan expenses?

(Just yesterday, I reviewed a set of plan documents, made using a big recordkeeper’s IRS-preapproved documents, that read strictly preclude using forfeitures on plan expenses.)

Does the service agreement obligate the recordkeeper to process the plan trustee’s reimbursement of a plan expense the employer paid? Does the service agreement set restrictions or conditions on processing amounts from forfeitures?

(Recognizing that many plan sponsor-administrators get little or no legal advice, a service provider might narrow its obligations or set conditions to manage risks that the service provider is criticized for “allowing” a plan’s administrator to do something it ought not to have done.)

Does the trust agreement or custodial-account agreement provide for the trustee or custodian to reimburse a plan expense the employer paid? If a reimbursement is provided or not precluded, what conditions does the agreement set for showing the trustee or custodian that the reimbursement is proper?

This is not advice to anyone.

Let me add one more thing, does the plan's 404a-5 notice disclose to the participants that the forfeitures will be used to pay plan expenses?