How to allocate DOL assessed late earnings calculated at a plan level

[Guest lpickell]

The DOL went back to 2000, and calculated a total amount of late interest for a plan by payroll date. The client is saying that the DOL did not provide a participant breakdown. The totals are very low, especially when at the time there were 300-400 employees on payroll during 2000. In addition, many of the affected employees are no longer in the plan.

Payrolls

5/10/2000 $7.49

10/25/2000 $180.00

11/08/2000 $114.78

12/01/2000 $111.41

12/20/2000 $94.33

12/20/2000 $719.52

12/20/2000 $461.38

01/12/2001 $205.61

2/01/2002 $41.29

3/15/2002 $93.21

05/07/2002 $41.91

Total $2070.93

In Chapter 13 regarding the VFC program, Sal Tripodi says that a special "de minimus" distribution applies with respect to former employees. If the cost is less than $20 per individual, the distrib does not have to be made. Instead, the client makes the payment to the plan as a whole.

If I don't have participant-level detail, I cannot confirm that all amounts are de minimus. Yet, I don't know what else to do besides allocating the $2070.93 prorata among eligible participants. Do you have any advice?

[E as in ERISA]

What are the average assets in the plan?

I'm assuming that you're not going to back and do an exact calculation and you want to spread the money pro rata (based on account balance?). If you want to capture some terminated participants who would have received more than $20, then do a back-of-the-napkin calculation of how large a balance they would have had and exclude distributions less than that. For example, if you've had about $500,000 in the plan, then you might only go back and look for persons with accounts greater than $5,000. (2700/500,000 = about a 0.42% allocation. $20 is 0.42% of $5000.)

By the way, I think that $20 went up to $50 (or the cost of the distribution, if less) in more recent EPCRS Rev. Procs.? That would give you a much larger account balance to worry about.

NOTE: Imprecise calculations could subject them to penalties on the difference between what the DOL's method would provide and what they actually do. But there's also a huge cost to precise calculations.