Defined Contribution Plan Forfeitures: Proposed Regulations And Recent Litigation

There have been recent developments from both the Internal Revenue Service (“IRS”) and the Department of Labor (“DOL”) and pending court cases about how plan forfeitures under defined contribution retirement plans must be handled. As described in more detail below, however, there are inconsistences among these developments that plan sponsors need to be aware of. The purpose of this advisory is to summarize what the potential conflicts are and to make sure that employers are aware of them, and that until these potential conflicts are resolved, employers are administering their plans so as not to violate any of the rules.

IRS Proposed Regulations

The IRS issued proposed regulations in February 2023 providing guidance as to when and how plan forfeitures under defined contribution plans¹ can be used. Under the proposed regulations, forfeitures may be used for one or more of the following purposes: (i) to pay plan administrative expenses, (ii) to reduce employer