Par. 3. Section 1.401-7 is revised to read as follows:
(a) Forfeitures under a qualified defined benefit plan. In the case of a trust forming a part of a qualified defined benefit plan (as described in section 414(j)), the plan must expressly provide that forfeitures may not be applied to increase the benefits any employee would otherwise receive under the plan at any time prior to the termination of the plan or the complete discontinuance of employer contributions thereunder. However, the effect of forfeitures may be anticipated in determining the costs under the plan. See sections 430(h)(1), 431(c)(3), and 433(c)(3), as applicable, regarding the use of reasonable actuarial assumptions in determining the amount of contributions required to be made under a plan to which one of those sections applies.
(b) Forfeitures under a qualified defined contribution plan. In the case of a trust forming a part of a qualified defined contribution plan (as described in section 414(i)) that provides for forfeitures, the plan must provide that:
(1) Forfeitures will be used for one or more of the following purposes:
(i) To pay plan administrative expenses;
(ii) To reduce employer contributions under the plan; or
(iii) To increase benefits in other participants' accounts in accordance with plan terms; and
(2) Forfeitures will be used no later than 12 months following the close of the plan year in which the forfeitures were incurred under plan terms.
(c) Transition rule for forfeitures incurred during plan years beginning before January 1, 2024. For purposes of paragraph (b)(2) of this section, forfeitures incurred during any plan year that begins before January 1, 2024, will be treated as having been incurred in the first plan year that begins on or after January 1, 2024.
(d) Applicability date. This section applies for plan years beginning on or after January 1, 2024.