FORFEITURE PROVISIONS 39. Treatment

Statement of Requirement: Code § 401(a)(8); Reg. §§ 1.401-1(b)(i) and (ii), 1.401-7(a)

Sample Plan Language:

(Target benefit plans must use #1 and other plans may use either #1 or #2)

Provision #1: Any forfeitures occurring will reduce employer contributions for the next plan year.

Provision #2: Forfeitures will be allocated in the ratio that the compensation of each participant bears to that of all participants for the plan year in which the forfeiture occurs.

(Note to reviewer: If the plan provides for either a uniform points allocation

70 | D e f i n e d C o n t r i b u t i o n P l a n L R M P a c k a g e 0 1 / 2 0 2 4

formula consistent with LRM #25A or permitted disparity consistent with LRM #29, the above plan language should provide that forfeitures will be allocated in accordance with the allocation formula of the plan.)

(Note to reviewer: Proposed regulations, effective for plan years beginning on or after January 1, 2024, would 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. This provides a single deadline for the use of forfeitures that applies for all types of defined contribution plans, similar to the deadline under Treas. Reg. § 1.401(k)-2(b)(2)(v) regarding a § 401(k) plan’s correction of excess contributions. These regulations also propose a transition rule for forfeitures incurred for any plan year beginning prior to January 1, 2024. See Prop. Treas. Reg. 1.401-7(b), 99 Fed. Reg. 12282 (2023). Plan sponsors may but are not required to include plan language in conjunction with Provision #1 or #2 incorporating this rule.)