Attention 401(k) plan managers: Do you know how much money is in your plan forfeiture account?
If that amount is $1 or more, then you should know that the IRS has released new proposed rules relating to plan forfeitures.
The new guidance would provide a deadline for the use of forfeitures in defined contribution plans.
Written or electronic comments must be received by May 30, 2023.
The proposed regulations generally require that plan administrators use forfeitures no later than 12 months after the close of the plan year in which the forfeitures are incurred.
An IRS newsletter previously advised that generally “[n]o forfeitures in a suspense account should remain unallocated beyond the end of the plan year in which they occurred,” and that “[f]or those plans that use forfeitures to reduce plan expenses or employer contributions, there should be plan language and administrative procedures to ensure that current year forfeitures will be used up promptly in the year in which they occurred or in appropriate situations no later than the immediately succeeding plan year.”
What’s in your forfeiture account?