earnings on a 415 refund

[fiona1]

A plan participant has exceeded the 415 limit for the Limitation year of 1/1/07 to 12/31/07. Now, the plan document says that the correction method is to refund the elective deferrals (with attributable earnings). However, it doesn't specify how those earnings should be calculated.

Now, I know that the Final 415 regulations say that a plan sponsor should use EPCRS to correct a 415 failure, but I believe that is effective for 1/1/08 Limitation Years. So for this situation, the plan sponsor is still using the direction from the plan.

I looked at the old 415 regulations - in §1.415-6(b)(6) - and all it says is that the 415 refund should include "gains attributable to those elective deferrals and employee contributions". Again, no specific instructions on how to calculate the earnings.

So I went to Sal to see what information was in the ERISA Outline Book. In his section on returning excess annual additions (in the 415 chapter), he just says "gains credited on the excess amount should be distributed along with the excess amount". Not much help.

So one of my co-workers said that Appendix B of the EPCRS has 4 different safe harbor methods of calculating earnings - and that the plan sponsor can use any one of those methods in calculating the earnings on the excess annual addition refund. However, it specifically says in this section that "This section 3 does not apply to corrective distributions or corrective reductions in account balances."

So I guess my question is this - how is it determined how earnings should be calculated on an excess annual addition refund? Does the plan need to be more specific? Has the IRS issued any guidance - seeing as how there is nothing specific in the 415 regulations?

[Lou S.]

In the past when this came up we have used the same method as allocating earnings on an excess contribution or excess deferral refund.