This blog entry may be a bit more technical than most of what we provide, but it represents a short and sweet attempt to describe an important development for plan sponsors that face nondiscrimination failures.
If your plan fails nondiscrimination requirements, many employers accomplish a correction by returning excess contributions to highly compensated employees (HCEs). Others, who prefer to keep those contributions in the plan, correct the failure by making an additional contribution for non-HCEs, which may be a Qualified Nonelective Contribution or a Qualified Matching Contribution. You may see those called “QNECs” or “QMACs”.
If you’re in the latter group, you may prefer to use any available forfeitures to fund all or or a portion of the QNEC or QMAC. Prior IRS regulations may have prevented you from doing so, though, because they required any corrective amounts to be fully vested at the time “contributed” to the plan. Because forfeitures were not fully vested when “contributed”, you couldn’t use them for the corrective contribution.
Last week, however, the IRS published a proposed regulation that merely requires the corrective contribution to be fully vested at the time it is “allocated” to a participant’s account. This frees up your ability to use forfeitures in this manner, which may save your company money and may influence you to pursue a corrective method that keeps money in the plan (rather than refunding it). Although the regulation is merely in proposed form, the IRS was careful to clarify that that you may rely on the regulation for periods preceding the regulation becoming final. In essence, this means you can rely on it for prior years and while the regulation remains proposed.
At a meeting with IRS and Treasury officials last week, the IRS confirmed its hope that this regulation will facilitate the reasonable practice of keeping money in plans. We suspect that will become more likely if the IRS were to relax its stance on the deadline for using forfeitures, but that may take some time.
Matt Eickman

Matt Eickman

Full Bio

Matthew loves to write. He also loves to think, though he’s probably a better writer than a thinker. He does not like to be on camera or in videos. This blog will allow him to write, challenge his ability to think, and, from time to time, test him with video blog entries.

He has a unique blend of legal and practical experience that helps us to serve our clients well. On the one hand, he has more than 12 years of private legal practice experience focusing exclusively on employee benefits, including time as a partner in an employee benefits boutique where he has represented clients in front of the DOL and IRS. On the other hand, he holds his FINRA Series 7 and 66 registrations and serves as the Director of ERISA Services for Qualified Plan Advisors.

Matthew likes to stay active. He provides fiduciary training, Investment Policy Statement design, and vendor oversight to our clients. He is an active member of the Employee Benefits Committee of the American Bar Association Tax Section, serving as Chair of the Defined Contribution Plans Subcommittee. He also has been appointed to the IRS TE/GE Gulf States Council and is a frequent speaker on regulatory developments, fiduciary responsibilities, and retirement readiness.

Most importantly, he stays active with his family. His wife, Laura, is the founder of REbeL, Inc., a not-for-profit organization. His three young boys are mixed up in far too many sports, and they enjoy traveling, watching college football, running with Dad, and rooting for the Huskers.
Matt Eickman
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