FAQ 536: Budget--Partnership with forfeitures reducing the contribution


I have a case that is a partnership that has forfeitures reducing the contribution. I used the budget routine, and it ran (giving me the error about forfeitures reducing), but ignored the forfeitures. Is there a way to do this in ASC's budget routine?


We researched this issue extensively this year and found it problematic to come up with a programming solution that works for everyone. We even talked to Sal Tripodi, who was surprised that clients were using forfeitures to reduce contributions in a plan where contributions are discretionary. The issues that we got no clear consensus on included reducing partner cost vs. staff cost, proration among the eligible plan population, what to do when the forfeiture exceeds the contribution for either staff or partners, and what happens when the expense percent differs from the income percent. Clients we surveyed using forfeitures to reduce in profit sharing partnership plans indicated that they only had a few of them, and they would likely be amending them to allocate forfeitures, or would use spreadsheet calcs for them.

There is a workaround - You could reduce the staff contribution by the forfeiture amount in your coding. For example, in a new comp plan, reduce the staff tier percentage by the forfeiture percentage, or the dollar amount by the total forfeiture dollars, then allocate the forfeitures prorata outside the budget in normal valuation calculations. This would generate the same a4 results since both are included in the accrual rate calculation. This would need a couple of budget calcs to determine the passing percentage. You could then make the adjustment, and it wouldn't be dead on with the income changes, but it would be close.