ASPPA Supports Forfeitures to Fund Safe Harbor Contributions

July 9, 2013 ( - The American Society of Pension Professionals & Actuaries (ASPPA) sent a comment letter to the Internal Revenue Service (IRS) regarding the use of forfeitures to fund ADP test safe harbor contributions and certain other contributions.

ASPPA is supplementing a May 2012 comment letter to (1) provide additional support for its position that forfeitures can be used to fund these contributions, and (2) request that, in the absence of a change in ruling policy, Internal Revenue Code (Code) §7805(b) be applied to provide transitional relief to plan sponsors who may have reasonably believed that, in the absence of an express prohibition, their plan’s language permitted forfeitures to be used in this way.

The Society recommended the IRS change its ruling policy and, to the extent necessary, issue sub-regulatory guidance that confirms forfeitures are permissible sources for qualified non-elective contributions (QNECs) and qualified matching contributions (QMACs) and that the non-forfeitable status of such amounts is determined at the time they become part of the accrued benefit of the recipient of the restricted contributions.

The letter also said the IRS should apply the protections of Code §7805(b) liberally in circumstances where plan documents subject to a favorable opinion, notification or determination letter do not explicitly prohibit the use of forfeitures to fund these contributions.

The comment letter is here.