How do you handle the forfeiture of merged money purchase monies in a 401(k)? Do these monies still retain the taint of money purchase once they have been forfeited by a participant? I have been keeping up with them in a separate account and reallocating them; however, this year the employer wants to use the monies to reduce the matching contribution that they are making. Can this happen or do I have to track them separately due to the restrictions on the money purchase monies? (I do not have JSA on the profit sharing monies.)

Hmmm?

From the ASPA 2002 Q&A session with the IRS:

p 10. Regarding Rev. Rul. 2002-42, if you don’t have to fully vest money purchase accounts at conversion to profit sharing plan, are the forfeitures from the money purchase accounts, when reallocated in later years, subject to the money purchase restrictions because they were part of “the assets and liabilities that originated” in the money purchase plan? My initial reaction is of course not. Revenue Ruling 94-76 says if separate accounting is maintained, only transferred assets are subject to the “money purchase taint” and references 1.401(a) – 20 Q&A 5 for acceptable separate accounting. There it says that if the plan is a transferee plan with respect to a participant, the QJSA rules don’t apply to other participant’s solely because of the transfer. This would seem to imply that the “taint” goes away when the originally transferred assets are reallocated to others as forfeitures.


A. We agree that there would be no taint. This is a clarification of our discussion at the ASPA conference in San Diego this summer.

K,

You have been a godsend! Thanks!!