HIRS Gives Permission To Use Forfeitures As QNEC/QMAC/SAFE Harbor Contributions

Good news! In January 2017 the IRS released proposed regulations to allow the use of plan forfeitures to fund qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs), including those made as 401(k) safe harbor contributions. If Randall + Hurley prepares your plan document, we will provide a QNEC/QMAC Forfeiture Amendment which will allow the use of forfeitures to fund QNECs and QMACs beginning with the plan years ending on or after January 18, 2017. This amendment applies to 401(k) plans, profit sharing plans and money purchase plans. You can expect to receive this amendment for your files during the second quarter.


QNEC and QMAC contributions (including 401(k) safe harbor contributions) are required to be 100% vested and are subject to distribution restrictions similar to elective deferrals. Forfeitures on the other hand are derived from non-vested accounts (forfeited from matching and profits sharing contributions) and do not carry the same distribution restrictions. The IRS had interpreted the regulations to mean that forfeitures could not be used to fund QNECs and QMACs because they were not 100% vested and did not meet the same distribution restrictions.