Earnings Calc on 415 Excess

[Guest mac_qka]

It has been too long since I've administered a plan with 415 excesses. I've learned that gap period income does not apply. But, my question is, what if the participant experienced a loss? I think I remember that annual addition excesses are not reduced for loss. Is my memory correct?

Thanks in advance!

[ERISAnut]

This is purely and interpretational issue and you should refer directly to the plan document. I am shooting from the hip on this one but remember that the code is written to state that you distribute 'gain' but does state 'gains or losses'. Too lazy to look it up, but remember crossing this bridge. The plan document may have it written either way.

[Guest mac_qka]

Thanks for the heads up. It was right there in the plan doc, clear as mud.

[ERISAnut]

Thanks for the heads up. It was right there in the plan doc, clear as mud.

Always is. Sometimes you will have a prototype document with such language (stating either way with respect to 'gains' or 'gains or losses'); and many times in interpretation is not clear. You will find that you are in a arena where there is no right or wrong, but merely a consistent interpretation (in good faith) of the plans terms. One important thing to continue to realize is that it is typically the adopting employer (as plan sponsor) who is authorized to make the interpretation of their plan.

The funny thing is, two different plan sponsors on the same prototype may actually arrive at different conclusions of what a particular term means for their plan. This is perfectly okay; and accounted for through case law. Each plan would typically have language stating that the plan sponsor is reponsible for interpreting the plan. This effectively says that even though their interpretation may not be the best one, it is still valid provided that it is not 'arbitrary and capricious'.

Now, when such language is not stated in the document (making the plan sponsor the authority for interpreting the document) then all hell can break loose as the door is left open for employees to argue for the best interpretation (regardless of what is deemed most reasonable and consistent by the employer).

It took me a long time to accept this.