Calculating Earnings for a Gap Period

[Guest msxtrme]

Is there specific guidance written on how to calculate the "gap period" earnings on a corrective distribution?

[Guest psgross]

Typically the basic plan document will tell you how to calculate gap earnings. The McKay document says gap earnings are "calculated earnings x 10% x number of months in gap period". If paid before the 15th of the month use the prior month end; if paid after the 15th of the month, use the whole month.

[Guest msxtrme]

PSGROSS:

I read through the plan document and it doesn't mention the "gap period" at all. So am I safe to say, I would not need to calculate them?

The basic plan document states that; "A corrective distribution must include any allocable gain or loss for the Plan Year in which the excess occurs. For this purpose, allocable gain or loss may be determined in any reasonable manner, provided the manner used is applied uniformly and in a manner that is reasonably reflective of the method used by the Plan for allocating income to Participant's accounts."

Thanks for all your help.

[Tom Poje]

gap earnings must be calculated for plan years beginning after 12/31/05

however you are permitted to operate the plan under the new regs if you want (you just have to follow all the terms of the new regs you can't pick and choose)

chances are you probably do'nt or won't and so there would be no gap income.

The new regs describe how to calculate gap income,

Treas Reg 1.401(k)-2(b)(2)(iv)(D)

See also example 4 of treas reg 1.401(k)-2(b)(2)(viii)

Treas Reg 1.401(k)-2(b)(2)(iv)(E)

one of the examples has an error in the calculation (whoever said they can do simple math), but I don't recall which one.

[Guest psgross]

I agree with Tom above. Beginning with plan years after 12/31/05, gap earnings must be calculated. If your plan document is silent at this point, then I would think you wouldn't have to calculate.