FAQ 7: Budget--Forfeiture allocation not going to HCEs


I figured out how to get the computer to allocate the correct contribution but don't understand why the people in Group 2 are not sharing in the forfeitures. Thanks for your help.


This is a little hard to explain. If you run this through the valuation calculations, it will allocate forfeitures to those in Group 2. However, when you run it in Budget, it does not. So, we are inconsistent in our application between the Budget and the Valuation calculations.

The programmer has told me that the Budget is a very complex calculation anyway, and he is not prepared to change it for this issue. The programmer argues (and he is correct) that the staff gets the same "total allocation", with the a4 test passing exactly the same either way, since a4 allocation rates are based on "contribution + forfeiture". For example, the Budget routine might design a staff contribution of 5.62% that is all contribution with no forfeiture, or the staff could get a 4.62% contribution and a 1% forfeiture with the Valuation routine. Either way the a4 results are the same. The problem with this is that clients do not like to see all of the forfeitures going to the HCEs. It doesn't feel right, and doesn't follow verbatim their document language.

The easiest workaround at this point is to code the forfeitures to reduce the contribution, and not allocate them at all. If you absolutely hate this, you can use another workaround also. First calculate the required Group 2 contribution in the Budget. Review the required percent for Group 2. Enter this rate *less* what the forfeiture percentage would be in the source 2 specs and run the valuation calculations. The forfeitures are then allocated among all participants. The combination of the contribution + forfeiture meets the a4 test.