What are forfeiture 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 one of the below categories:
- Forfeiture Funds: Unvested employer contributions forfeited when an employee leaves before full vesting.
- Suspense Funds: Employer contributions that exceeded plan or IRS annual limits and are held until they can be applied to future employer contributions.
The plan document dictates how forfeiture and suspense 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 with plan documents and existing regulations.
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 (forfeiture, suspense) was used for payrolls.
For tracking how unallocated funds are generated or used beyond payroll, refer to the Reports (https://401k.betterment.com/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 (https://401k.betterment.com/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. This Betterment automation helps apply unallocated funds within required regulatory timeframes. If you prefer to manage these funds manually, you can opt out of automation in the Payroll Details (https://401k.betterment.com/payroll_details) tab.
Automation applies only to employer contributions during payroll. It does not apply funds to invoices or other plan expenses.
Can I use unallocated funds to pay my plan's invoice?
Sometimes. It depends on the type of fund and what your plan document allows.
- Forfeiture funds can generally be used to pay eligible plan expenses, such as certain administrative fees, if your plan document permits it.
- Suspense funds can't be used to pay plan fees. They can only be used to offset employer contributions or be allocated to participants.
The Auto Apply Unallocated Funds setting only applies funds to employer contributions during payroll. It doesn't apply funds to invoices. If your plan doesn't make employer contributions through payroll, this setting won't use your unallocated funds.
To pay an invoice with eligible unallocated funds, contact your Betterment at Work support contact with your plan name and invoice number.
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.