Use of Forfeitures in Qualified Retirement Plans: Recent IRS Regulations, Timing, Permitted Uses, Risks, and More

Description

Employer-sponsored retirement plans continue to experience heightened IRS scrutiny of plan forfeitures. Plan sponsors and their counsel seeking to use forfeitures must determine when forfeitures occur and how to use them appropriately in light of recent IRS regulations in addition to other key considerations.

Forfeitures are plan assets derived from non-vested employer contributions that are forfeited from a participant's account when that participant terminates employment and is not fully vested. The plan document typically specifies the timing of the forfeiture, vesting schedules, applicable IRS rules, and in some cases is left at the discretion of the fiduciary. Instead of using employer assets, these forfeited funds can be used to pay for employer contributions or plan expenses. However, plan sponsors face a number of challenges stemming from IRS rules, plan documentation, timing, and other key items that must be considered to mitigate compliance risks.

Recently, the IRS issued proposed regulations in an attempt to streamline plan forfeiture rules focused on the (1) timing for use of defined contribution plan forfeitures, (2) permitted uses of forfeitures for defined contribution plans, and (3) use of forfeitures in defined benefit plans.

Listen as our panel discusses recent IRS proposed regulations, the timing of use issues, permitted uses, reducing employer contributions and paying plan expenses, forfeitures in defined benefit plans, risks, and other key issues.