What is a legal requirement for money purchase pension plans?

For money purchase pension plans, it is a legal requirement that forfeitures can be reallocated or used to reduce employer contributions. This is an important feature of such plans, as it helps counterbalance costs and maintain the funding of the plan.

When participants in a money purchase plan leave the company before they are fully vested in their benefits, the unvested portion is considered a forfeiture. The legal guidelines allow these forfeitures to be reallocated among remaining participants or used to reduce future employer contributions to the plan. This means that the overall cost implications of these forfeitures can benefit the plan and its participants by redistributing funds rather than leaving them unused.

Understanding this requirement is critical for employers managing pension plans, ensuring compliance with regulatory standards and optimizing the financial management of retirement benefits for all employees. The other options do not accurately reflect a legal requirement for money purchase pension plans, highlighting the specific nature of how forfeitures must be handled under the regulations governing these types of retirement plans.