Regulations for Definitions of QMAC and QNEC Finalized

The Internal Revenue Service (IRS) has issued final regulations on the definitions of qualified matching contributions (QMACs) and qualified nonelective contributions (QNECs).

Under these regulations, an employer contribution to a plan may be a QMAC or QNEC if it satisfies applicable nonforfeitability requirements and distribution limitations at the time it is allocated to a participant’s account, but need not meet these requirements or limitations when it is contributed to the plan.

The IRS says the final regulations are mostly similar to the proposed regulations issued last year.

In the final regulations, the agency addressed commenters’ concerns that the definitions would preclude them from using forfeiture accounts to fund the contributions. According to the final regulations, this is because the amounts would have been allocated to the forfeiture accounts only after a participant incurred a forfeiture of benefits and, thus, generally would have been subject to a vesting schedule when they were first contributed to the plan. Commenters requested that QMAC and QNEC requirements not be interpreted to prevent the use of plan forfeitures to fund QMACs and QNECs.

The IRS clarified that forfeitures would be permitted to be used to fund QMACs and QNECs.