Forfeiture Funds in a defined contribution plan could help strengthen the overall plan. Company employees who choose to participate in their employer’s tax qualified retirement plan are always fully-vested in those funds that they have deferred. Those employees are setting aside funds for their own benefit at a future retirement date. Employer contributions to participant accounts are not always fully available to employees prior to becoming fully vested in those contributions. When a 401(k) participant separates from the employer prior to becoming fully vested, the unvested account balance is forfeited back to the plan per the terms described within the plan document. This process is normal and documented in the plan document, however a plan oversight committee may struggle with the determining the best use of forfeited balances.
What Happens to the Forfeited Funds?
Most retirement plan documents provide that forfeited funds are procedurally transferred from participant accounts to an omnibus suspense account. Forfeiture assets remain in the structure of the retirement plan accounting. The plan document will address the acceptable usage of forfeited assets. Traditional accepted usages, described in 4 Ways To Use 401k Plan Forfeitures, include:
- Reducing future employer contributions;
- Paying reasonable retirement plan expenses;
- Allocating among participants as additional contributions; and
- Restoring previously forfeited participant accounts.
Can the Industry do Better?
Consider using Video Production for a portion of plan forfeiture balances. Plan sponsors who are using Video clips to communicate with the eligible employees, are experiencing measurable results with improving Plan Participation Rates, Participant Deferral Rates and reduced Loans. Video has become the preferred medium when communicating with employees age 22 to 40. Video clips will deliver constant and controlled messages on your 401(k) plan while saving time for internal staff and retirement plan committees.
Astute Plan Sponsors will consider implementing an Education Policy Statement for their 401(k) Plan (similar to an Investment Policy Statement) to improve the messages to participants and internal efficiencies.
Check with your Plan Advisor to see how you can take full advantage of 401kTV and 401kSTUDIOS.
