Definition§
Forfeitable refers to benefits in a pension or profit-sharing plan that a participant does not own until they meet certain length-of-service or performance criteria. If these criteria are not met, the benefits can be forfeited, meaning the employee loses the rights to those benefits.
Examples§
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Pension Plan:
- An employee must work for a company for ten years to be fully vested in the pension plan. If the employee leaves after seven years, they forfeit any unvested benefits.
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Profit-Sharing Plan:
- A company’s profit-sharing plan stipulates that employees must achieve five years of service for full vesting. An employee who leaves the company after three years would forfeit the contributions made by the company.
Frequently Asked Questions (FAQs)§
What does forfeiting benefits mean?§
Forfeiting benefits means losing the right to benefits in a pension or profit-sharing plan because the required vesting criteria were not met.
How does vesting work?§
Vesting is the process by which an employee earns the right to keep company-provided benefits. It often involves meeting specific service or performance milestones.
Can forfeited benefits be reclaimed?§
Typically, once benefits are forfeited, they cannot be reclaimed. However, policies can vary depending on the employer and the terms of the plan.
What triggers the forfeiture of benefits?§
Common triggers include failing to meet the prescribed length of service or not achieving required performance targets.
Are all types of retirement plans subject to forfeiture?§
No, not all retirement plans are subject to forfeiture. For example, benefits from individual retirement accounts (IRAs) generally cannot be forfeited once vested.
Related Terms§
Vesting§
Vesting refers to the process through which an employee earns the rights to benefits in a retirement plan over time.
Profit-sharing Plan§
A profit-sharing plan is a retirement plan that allows employers to share some of their profits with employees, typically through contributions that are made to individual accounts.
Pension Plan§
A pension plan is a type of retirement plan where an employer makes contributions to a pool of funds set aside for an employee’s future benefit.
Online References§
Suggested Books for Further Studies§
- “Retirement Plans: 401(k)s, IRAs, and Other Deferred Compensation Approaches” by Allen Reuther
- “Pension Fund Economics and Finance: Efficiency, Risk and Agency Issues” by Rober Clark
- “The Vesting and Forfeiture of Benefits in Pension Plans” by Robert S. Kaplan
Fundamentals of Forfeitable: Retirement Plans Basics Quiz§
Thank you for exploring the concept of forfeitable benefits in pension and profit-sharing plans. We hope you find this information and the quiz helpful for your financial literacy journey.
