Refund of Excess Contributions and gap period income

[Guest SPOT]

I'm reading through the final 4k regs and am hoping you all can confirm my understanding of gap period income. Here is what I have concluded:

The final regs clarified that gap period income needs to be included only to the extent the employee is or would be credited with allocable gain or loss on those excess contributions for that period, if the total account were distributed. For daily valued plans and plans with deferrals going into self directed IDAs I would have to include the gap period income in the total refund amount. If I have a monthly, quarterly, etc. balance forward plan, then I would only have to include gap period income IF I've pass a mid-year valuation date. In addition the "End Date" of the gap period can be up to 7 days (I'm assuming business days?) prior to the actual distribution date.

My source for this is Internal Revenue Bulletin 2005-5.

In addition, from what I have read about PPA 2006, the bill would eliminate the requirement to distribute gap period earnings, but this would not be effective until plan years that begin in 2008 so with the exception of 2006 and 2007, I can go back to ignoring gap period income.

I'd appreciate any feedback if I am misunderstanding the regs.

Thanks!

[Guest rgorman]

I think you have everything correct. A recent webcast from ASPPA & McKay Hockman confirmed everything you outlined.

There is a 7 day lag period on the calculation of the gap period earnings but check needs to go out seven days after calculation. Yes, it goes away in 2008.