NT: question for CPA-types who might have better ideas than I on this one

[Catherine]

Contact of mine in financial services sent me a query:

"How would you suggest categorizing a 401k plan forfeiture in Quickbooks?

I have customer with a 401k plan that which has a small credit due to forfeiture. That forfeiture is being used to reduce what the employer is obliged to contribute for this one pay period. The bookkeeper needs to enter this, but it hasn't come up before, so she didn't know where/how to classify it."

I have some ideas (one easier for a bookkeeper to enter correctly, another more detailed on flow of funds in case there are questions three years down the road), but figured I'd ask for opinions here before I send him anything concrete.

[Lee B]

I assume the forfeiture is due to an employee leaving before they were fully vested.

What does the plan document say about forfeitures?

Sometimes forfeitures are allocated to the other participant accounts?

Or if the forfeitures are offset against employer contributions then the employer just makes a reduced contribution,

in which case I wouldn't make any journal entry.

[BulldogTom]

I have never used the forfeited funds for employee match.   Suggest you make sure that is allowed in the plan doc like cbslee says.   If it is, I would guess that you need 2 entries.   #1 is to record the forfeiture and would be a debit to an asset account and a credit to the same expense account you use for the match.   #2 is when you use the forfeiture, reverse the entry above.

I used to do a lot of these.  Forfeits were only used for plan expenses.   We had a cash account for the plan administrator to deposit the forfeitures into.   At the time of the forfeiture we debited that cash account and credited 401K ER Expense.  When we used the cash to pay the plan expenses at the end of the year when the administrator prepared the statements, testing and 5500 we debited the expense 401K ER Expense and credited the cash account.

Tom
Longview, TX

[kathyc2]

It's going to depend on how they normally book entries.  The correct way under normal circumstances would be to debit employer match expense and credit 401K liability each pay period. Since the forfeiture is reducing the amount they need to pay debit 401K liability and credit match expense.  A detailed description in journal entry why the entry is made for future reference. 

[Catherine]

Thank you all for your responses. The company in question is a client of a contact of mine. I have no idea what the plan docs say but they seem to. I'll underscore they should investigate the plan docs first.