The practice of forfeitures in 401(k) plans was to reallocate or reduce contributions. Then language allowed to pay for plan expenses.
The litigation against large plan sponsors that have used forfeitures to reduce contributions has given me a chilling effect. While reducing contributions has been allowed since the beginning of the time, I’d be afraid if the court would opine that it’s a prohibited transaction. That is why I’d use forfeitures to pay expenses, and then reallocate.
