AMENDMENT TO PERMIT FORFEITURES
TO BE USED TO REDUCE QNECs, QMACs AND SAFE HARBOR CONTRIBUTIONS
FIS Relius has developed an interim discretionary amendment that may be used to implement the Proposed Treasury Regulations (published on January 18, 2017) that modify the definition of Qualified Nonelective Contributions (QNECs) and Qualified Matching Contributions (QMACs) (which also includes ADP test safe harbor contributions). For more details on the new definition, see our Pension Technical Updatedated January 20, 2017.
Background
The IRS required PPA documents to restrict the use of forfeitures to offset any contributions that are required to be fully vested when contributed. The contributions that are required to be fully vested when contributed include QNECs, QMACs and traditional ADP test safe harbor contributions (safe harbor contributions made under a Qualified Automatic Contribution Arrangement are not subject to the restriction because the contributions could be subject to a vesting schedule when contributed).
Some plans allow forfeitures to be disposed of in accordance with administrative procedures, but all plans have underlying language restricting the use of forfeitures. Therefore, if an employer wants to use forfeitures to reduce QNECs, QMACs or traditional safe harbor contributions, an interim amendment is required.
When must plans be amended?
If a plan sponsor wants to use forfeitures to offset QNECs, QMACs and/or safe harbor contributions, then an amendment must be adoptedby the last day of the plan year in which the amendment is first effective (i.e., the plan year of implementation). This amendment only removes the prohibition on how forfeitures can be used. It does not amend any other plan provisions regarding forfeitures. For example, if a plan only permits forfeitures to be reallocated to participants, then an additional plan modification would be needed to provide that forfeitures may be used to reduce employer contributions.
A common question is whether the new rule can be applied to forfeitures attributable to the 2016 plan year but are now being disposed of in 2017. The answer is not clear and to be safe one would say that forfeitures attributable to 2016 cannot be used to offset QNECs, QMACs or safe harbor contributions. One notable exception is if an employer restated its plan for PPA in 2016 – the restriction on the use of forfeitures did not apply until the first day of the plan year following the year in which the PPA restatement was adopted. For these employers, the restrictions went into effect in 2017 (if a calendar year plan) and therefore the restrictions did not apply to the 2016 plan year.
Can I adopt this Amendment on behalf of all of my employer clients?
If your firm is NOT a pre-approved plan sponsor (e.g., if FIS (previously SunGard) is the pre-approved plan sponsor), then this amendment must be adopted by the employer who wants to utilize the provisions of the amendment. The amendment that follows is drafted for adoption by the employer (the header on the amendment is “Employer amendment”).Accordingly, any employer using a Relius IDP-formatted volume submitter plan (including a straight profit sharing plan or money purchase plan which provides for QNECs or QMACs) that wants to implement the changes made by this amendment must individually adopt the "Employer" version of the amendment.
Can I modify the Amendment?
Yes. However, we will add this Amendment to the Relius Document System in a future update. If you modify the Amendment, then it will not match the Amendment generated by the document system.
Employer amendment
AMENDMENT TO PERMIT FORFEITURES
TO BE USED TO REDUCE QNECs, QMACs and ADP SAFE HARBOR CONTRIBUTIONS
ARTICLE I
PREAMBLE
1.1Effective date of Amendment. The Employer adopts this Amendment to the Plan effective as of the first day of the Plan Year in which this Amendment is adopted, or if different, the earliest effective date permissible by applicable law.
1.2Superseding of inconsistent provisions. This Amendment supersedes the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this Amendment.
1.3Effect of restatement of Plan. If the Employer restates the Plan, then this Amendment shall remain in effect after such restatement unless the provisions in this Amendment are restated or otherwise become obsolete (e.g., if the Plan is restated onto a plan document which incorporates these provisions).
ARTICLE II
AMENDMENT PROVISION
Notwithstanding any prohibition in the Plan to the contrary, to the extent a Plan permits Forfeitures to be used to reduce any Employer Contributions, then such Forfeitures may be used to offset Employer Contributions that are Qualified Nonelective Contributions (QNECs), Qualified Matching Contributions (QMACs), and contributions made pursuant to Code §401(k)(12) (ADP Safe Harbor Contributions). Specifically, any Plan language stating or implying that a QNEC, QMAC, or ADP Safe Harbor Contribution must be fully vested when made or when contributed is modified to provide that such contributions must be fully vested only at the time such contributions are allocated.
* * * * * * *
The Employer hereby adopts this amendment.
(signature and date)
Employer Name:
Plan Name:
Employer amendment
CERTIFICATE OF ADOPTING RESOLUTION
The undersigned authorized representative of (the Employer) hereby certifies that the following resolution was duly adopted by the Employer on , and that such resolution has not been modified or rescinded as of the date hereof;
RESOLVED, the Amendment to the (the Plan) to permitforfeitures to be used to reduce QNECs, QMACs and ADP Safe Harbor Contributions (the Amendment) is hereby approved and adopted and that an authorized representative of the Employer is hereby authorized and directed to execute and deliver to the Administrator of the Plan one or more counterparts of the Amendment.
The undersigned further certifies that attached hereto is a copy of the Amendment approved and adopted in the foregoing resolution.
Date:______
Signed:______
______
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