RS final regs allow 401(k) plan sponsors to use forfeitures to fund QMACs and QNECs

The IRS has issued final regulations amending the definitions of qualified matching contributions (QMACs) and qualified nonelective contributions (QNECs) to allow employers with 401(k) plans that permit the use of amounts in plan forfeiture accounts to offset future employer contributions under the plan to use the amounts to fund QMACs and QNECs.

Under current regulations, to qualify as a QMAC or QNEC, contributions must satisfy nonforfeitability and distribution requirements at the time the contributions are made. Commenters have pointed out that requiring satisfaction of applicable nonforfeitability and distribution requirements at the time amounts are first contributed would preclude plan sponsors with plans that permit the use of amounts in plan forfeiture accounts to offset future employer contributions under the plan from applying such amounts to fund QMACs and QNECs. Commenters have asserted that employer contributions should be able to qualify as QMACs and QNECs as long as they satisfy applicable nonforfeitability and distribution requirements at the time they are allocated to participants’ accounts.

The IRS has decided that employer contributions may qualify as QMACs or QNECs if they satisfy the applicable nonforfeitability and distribution requirements at the time they are allocated to participants’ accounts, but need not meet these requirements when they are contributed to the plan.

Effective/applicability dates

These final regulations are effective on July 20, 2018 and applicable to plan years beginning on or after July 20, 2018. However, the final regulations may be applied to earlier periods.

Source: 83 FR 34469.
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