McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 62

{Research} Brady Corporation has a profit sharing plan that allocates 10 percent of all after-tax income to employees.The profit sharing is allocated to individual employees based on relative employee compensation.The profit sharing contributions vest to employees under a six-year graded plan.If an employee terminates his or her employment before fully vesting, the plan allocates the forfeited amounts among the remaining participants according to their account balances.Is this forfeiture allocation policy discriminatory, and will it cause the plan to lose its qualified status? Use Rev.Rul.81-10 to help formulate your answer.