Justworks enables customers who offer matching (or other employer) 401(k) contributions to use “forfeitures” as a credit toward employer contribution obligations. This includes matching contributions and any applicable plan administration fees.
Here are a few key items to keep in mind:
According to 401(k) tax rules, the concept of forfeitures applies to employer contributions that a participant becomes ineligible to receive due to a break in service or some other plan rule that does not allow the participant to share in employer contributions. This is important because:
- forfeitures only apply to employer contributions subject to a vesting schedule (in other words, if your plan provides 100% immediate vesting of employer contributions forfeitures may not be available);
- only unvested employer contributions can be considered as forfeitures (which highlights the importance of maintaining accurate employment service records); and
- employee contributions may never be “forfeited” and available for use by the employer (e.g., account balances of missing or non-responsive participants will not be subject to any forfeiture process that allows use of diversion of those funds for any purpose).
Starting in June 2022, if a company has funds in their forfeiture account, Justworks is giving them access to their balance by crediting invoices for employer contributions and any applicable plan administration fees funded throughout the year. These credits will be applied to the first invoice that processes each month. Credits on the invoice will be displayed as “Forfeitures Credits” and will be broken down into multiple line items, representing the payroll dates they are associated with.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.