Certified Plan Sponsor Professional (CPSP) Practice Exam

What happens to Donna's non-vested contributions after 2 years of service if she terminates employment?

1. She receives them upon termination

2. They are rolled over to another retirement plan

3. They are forfeited and used by the plan

4. They remain in the plan until she reaches full vesting

The correct answer is: They are forfeited and used by the plan

When Donna terminates her employment after 2 years of service and her contributions are non-vested, those contributions are typically forfeited and may be used by the plan. Non-vested contributions refer to amounts that the employee has not yet earned the right to keep based on the vesting schedule outlined in the plan document. If the plan specifies certain service requirements for full vesting that Donna has not met, the employer retains the right to forfeit those non-vested contributions. These forfeited amounts can then be utilized by the plan, often contributing to reducing the costs of future benefits or being redirected to other participants' accounts in accordance with the plan's provisions. The other possibilities either suggest immediate access to her non-vested contributions or their rollover to another plan, neither of which align with standard practices for unvested amounts. Keeping the contributions in the plan until she reaches full vesting also does not apply since the non-vested funds are generally forfeited upon termination of employment before reaching the required vesting period.