Understanding Forfeiture Accounts in Employee Benefit Plans

Key Takeaways

Forfeiture accounts come from unvested employer contributions.
When employees leave before they are fully vested in employer contributions, the unvested portion is forfeited and placed into a forfeiture account within the retirement plan.

The plan document determines how forfeiture funds can be used.
Forfeitures are plan assets and must be used according to the rules outlined in the plan document, typically to pay plan expenses, reduce employer contributions, or reallocate funds to participants.

Timely use and proper documentation are important.
Plan administrators should monitor forfeiture balances regularly, apply the funds within the required timeframe, and maintain clear records to support compliance during audits.

Watch the Video: Understanding Forfeiture Accounts

In this episode of Ask an EBP Auditor, Ellen Alphonso from Boyum Barenscheer explains how forfeiture accounts work in employee benefit plans and shares practical guidance for plan administrators on how to manage and apply these funds.

Watch the full video below to learn more about forfeiture accounts, vesting schedules, and best practices for retirement plan compliance.

About the Author

Ellen Alphonso is a Senior Manager and Employee Benefit Plan (EBP) specialist at Boyum Barenscheer. She works closely with plan sponsors and administrators to support the employee benefit plan audit process and help organizations maintain compliance with regulatory requirements.