Reallocated Forfeitures

A 401k plan has a safe harbor design using matching contributions.  The plan is not top heavy.  There are no profit sharing contributions but there are a small amount of forfeitures to be allocated to participants who work at least 1,000 hours and are employed at the end of the year.  New comparability (with each participant as a group) is normally used to allocate the forfeitures, however, doing the average benefit test and including the deferrals and match produce results much worse than if the forfeitures were allocated on a comp-to-comp basis.  If the forfeitures are allocated on a comp-to-comp basis, would the ABT still be needed to be done?  Can this type of allocation be considered nondiscriminatory?  

Regarding the last question, yes, it is nondiscriminatory. 

You might want to consider using forfeitures to pay expenses instead of allocating them.  Saves some trouble and if they are small, prevents opening up $2.00 accounts for participants who otherwise wouldn't have an account at all.  Unless you are a large payroll provider and offer fries, er, plan services, with that.

if the only allocation is forfeitures, assuming it is comp to comp, you could simply test on allocation basis and unless you have more than 30% term or < 1000 hours you would pass ratio % test anyway -without worrying about the ABT

Thank you

The trustees for the plan mentioned above are now considering making a profit sharing contribution and, of course, the ABT would fail even if it was done on a comp-to-comp basis.  In this scenario, would the PS allocations be considered nondiscriminatory if they also were done on a comp-to-comp basis?  More than 70% of the NHCEs would benefit.

See Tom's response.