How Your 401k Plan Uses Forfeitures to Reduce Employer Costs

Episode 36 of The 401k Podcast with Fexingo dives into a little-known but hugely impactful 401k feature: forfeitures. Every year, employees who leave a company before their employer match fully vests leave money behind—and that money doesn't vanish. Instead, it goes into a forfeiture account, which plan sponsors can use to reduce future matching contributions, pay plan fees, or even reallocate to remaining participants. Lucas and Luna break down the mechanics with a concrete example: a 5% match on a $60,000 salary, a two-year cliff vesting schedule, and what happens when an employee leaves after 18 months. They also discuss the recent IRS rule changes in 2025 that clarified how forfeitures must be used and why plan sponsors are now required to disclose forfeiture balances on Form 5500. By the end, you'll know how to check your own plan's forfeiture policy and why this hidden pool of money matters to your bottom line. Plus, a brief listener-supported moment tied to the episode's core message about transparency. #401k #Forfeitures #EmployerMatch #Vesting #RetirementPlans #IRS #Form5500 #PlanSponsor #Fiduciary #ERISA #ParticipantAdvocacy #FeeDisclosure #EmployerCosts #RetirementSaving #Finance #BusinessPodcast #FexingoBusiness #The401kPodcast Keep every episode free: buymeacoffee.com/fexingo