IRS Proposes changes to QNECs and QMACs

The Internal Revenue Service (IRS) has proposed amendments to the definitions of qualified matching contributions (QMACs) and qualified nonelective contributions (QNECs) for 401(k) plan that could certainly help plan sponsors who need to make these contributions as part of a correction for compliance purposes.

Under the proposed regulations, employer contributions to a plan would be able to qualify as QMACs or QNECs if they satisfy applicable nonforfeitability and distribution requirements at the time they are allocated to participants’ accounts, even if they weren’t nonforfeitable at the time they were contributed. As one of my old bosses would say, “bottom line”, that means plan sponsors could use forfeitures to funds QNECs and QMACs.

If a plan sponsor has employer contributions with a vesting schedule that creates forfeitures upon employee turnover and they have to fund a QNEC and QMAC, this will be a great benefit because ut means less money they have to take out of their pocket.

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