In terms of employer contributions, how should forfeitures be utilized?

Forfeitures in a 401(k) plan refer to the unvested amounts that are retained by the plan when a participant leaves the plan before fully vesting in their employer's contributions. The correct utilization of these forfeitures is to either reduce the employer contributions that are required to meet plan obligations or to allocate them as additional contributions to the plan.

This approach is beneficial for both the employer and the remaining participants in the plan. By reducing mandatory employer contributions, it lowers the financial burden on the company, while reallocating these forfeited amounts can enhance the benefits received by those who remain in the plan. This ensures that the remaining participants have a greater potential benefit without additional costs to the employer.

Employers often choose to allocate forfeitures toward making additional contributions to existing participant accounts, ensuring that the funds are used in a manner that directly benefits active participants. This practice also encourages retention by providing a way for employees to see the benefits of staying with the company.

The other options do not align with the standard practices for handling forfeitures. Increasing salaries does not directly tie to the retirement plan's funding and could complicate employee benefits. Funding external investments misuses the forfeited funds, as they should be applied within the retirement context. Lastly, reserv