IRS Endorses Forfeitures for QNEC, QMAC Contributions in Final Regulations

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The Internal Revenue Service (IRS) and U.S. Treasury Department on July 20 issued final regulations amending the definitions of qualified nonelective contribution (QNEC) and qualified matching contribution (QMAC) for employer-sponsored retirement plans to resolve questions about whether participant forfeitures can be used to fund QNECs and QMACs.

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The regulations took effect July 20, their day of publication in the Federal Register. The IRS also indicated in the regulations’ proposed form in early 2017 that the change can be relied upon for earlier periods.

The finalized regulations allow QNECs and QMACs to apply at account allocation, not only at the initial plan contribution stage. Under the new regulations, such employer contributions would qualify as QMACs or QNECs simply if they satisfy applicable nonforfeitability and distribution requirements when they are allocated to participants’ accounts, the IRS said.

Questions on Funding

Public commenters in the past had told the agency that applying nonforfeitability and distribution requirements only at the first point of plan contribution to fund QNECs and QMACs would prevent plans from applying forfeited amounts from the accounts of participants not fully vested to offset future employer contributions. This is because the money would have been allocated to the forfeiture

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