FAQ 333: Allocations--Coding for various forfeiture scenarios

Problem: Can you give me an overview of how the correct forfeiture process is suppose to work? I have tried to find it through the Help screens, but haven't been able to find it. One plan uses forfeitures to pay for fees, another to reduce matching, and another as a discretionary reallocation.

Solution: The employee(s) or the dummy participants who will forfeit a non-vested balances must be coded with a status code whose group is coded in the "Groups Forfeit Non-Vested Benefit" field in the applicable source specs. So, for example, if group "B" (which normally corresponds to status code "F" on the Group Definition screen) is coded in that field, anyone coded as a status "F" will forfeit their remaining account balance. Be aware that coding anyone as status "P" or "F" assumes that they have been paid out the vested portion of their account, so don't use those statuses until a distribution has been made since the system will make them 0% vested in anything that remains in their account. If you want to forfeit a partially vested person, like after 5 breaks in service, that is a little bit more tricky. Since you only want the system to forfeit the non-vested portion of the account, you cannot use status "P" or "F", since the system assumes that both of those statuses are 0% vested. Unless it is a very small plan and you can use a system-assigned status, like "T", because no one else has that status, I would suggest using a status like "Q" (or some other unused letter). Change the employee's status codes to "Q" on his or her Dates and Status screen, and make sure that the current vesting percentage on the Vesting screen is what it should be as well. Then go into the general plan specs, go to the Group Definition screen, input "PF" (no quotes) in the Group #A box and "Q" (or whatever letter you are going to use) in the Group #B box. Next, go into the applicable source spec screen(s) and input group "B" in the "Groups Forfeit Non-Vested Benefit" field, and save the specs. If you want the status "P" and "F" employess to forfeit as well, change the Groups Forfeit Non-Vested Benefit field to "AB", rather than just "B" and save the specs. Then, when you run calculations, the system should apply vesting and just forfeit the non-vested portion of the account. How the forfeitures are reallocated is based on your coding of the "Forfeiture Allocation Method" field on the same source spec screen. If forfeitures are used to reduce the contribution in that same source, you would choose option "4-Reduce Source Contribution". If the source 2 forfeitures are to be used to reduce the matching (source 3) contribution, then you would choose option "6-Reduce Matching Contribution". If the forfeitures are to be reallocated to the remaining participants, then you would choose one of the other options like "1-In Proportion to Compensation", or "2-In Proportion to Source Account", or one of the others. If the forfeitures are used to reduce fees, code the source using, "8-Offset Plan Expenses". This will remove the forfeitures from the participant's accounts but not reallocate. After calculating, the total of the forfeitures is stored in PLANSPEC >Values > FORF and the Summary of Major Plan Provisions will state "forfeitures are used to offset plan expenses".