What are forfeiture, cash and suspense funds?
Unallocated funds are assets within a 401(k) plan that have not been assigned to specific participant accounts. They typically accumulate due to administrative processes and fall into three main categories:
- Forfeiture Funds: Unvested employer contributions forfeited when an employee leaves before full vesting.
- Cash Funds: Residual amounts from payroll corrections or recordkeeping adjustments.
- Suspense Funds: Excess employer contributions or pre-funded amounts that exceed plan or IRS limits.
The plan document dictates how unallocated funds can be used, but they are primarily used to offset employer contributions. They may also be allocated to participants or used to pay eligible plan expenses. These funds must be used within specific timing requirements to maintain compliance.
How do I track unallocated funds?
You can track how unallocated funds were applied to a specific payroll through the payroll’s Overview page on the Plan Sponsor Dashboard. This page provides details on how each type of unallocated fund (cash, forfeiture, suspense) was used for payrolls.
For tracking how unallocated funds are generated or used beyond payroll, refer to the Reports section of your dashboard.
How do I opt in or out of the automatic application of unallocated funds?
To enable or disable the automatic application of unallocated funds to employer contributions during payroll, follow these steps:
- Select Payroll from the menu.
- Click the Payroll Details tab.
- Next to Auto Apply Unallocated Funds, click Edit to update your preference.
How does automation of unallocated funds usage affect me?
Automation simplifies the process of using unallocated funds by automatically applying them to offset employer contributions during payroll. Betterment automates compliance with regulatory timing restrictions while reducing manual effort. If you prefer to manage these funds manually, you can opt out of automation in the Payroll Details tab.
What happens if there aren’t enough unallocated funds to cover employer contributions?
If unallocated funds are insufficient to cover all employer contributions in a payroll, the remaining balance will be covered via ACH transfer. If you are opted into the automated usage of unallocated funds, Betterment will automatically use these funds first before processing the remaining balance through ACH.
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