GAP on 415 refunds - Yes or No?

[fiona1]

I know that when the Final 401(k) regulations came out a few years ago, they said that GAP earnings needed to be included in ADP/ACP and Excess Deferral refunds.

But what about refunding excess annual additions in excess of the 415 limit? Can those continue to be only plan year earnings?

For example, say you have a 1/1/07 to 12/31/07 limitation year and John has $2000 in excess annual additions. There is no "deadline" for issuing the 415 refund - so say that it's just being done now.

Would the earnings on this $2000 only include plan year earnings (earnings up to 12/31/07)? Or would they include GAP earnings (earnings up to the date of distribution).

I don't think the 415 regulations really say anything about how earnings should be calculated for 415 refunds. Heck, the new 415 regulations don't even say anything about 415 refunds because they should now be handled in the EPCRS.

There is a note in the ERISA Outline Book under the 415 refund section that says "The longer the delay in making the distribution (415 refund), the more earnings will have to be distributed as well." The only way earnings could increase is if GAP was included. If GAP was not included, then the earnings would be the same regardless of when they were distributed.

Thoughts?

[QDROphile]

Look to EPCRS for correction.

[fiona1]

I did. And there is 2 problems with that.

1. This is a 2007 limitation year. EPCRS isn't used to correct 415 failures until 1/1/08. Prior to 1/1/08 you have to use the plan document. The plan says to issue refunds to correct a 415 failure - but doesn't say how to calculate earnings.

2. The EPCRS doesn't say how to calculate earnings either. It just says that one of the methods to correct a 415 failure is to issue refunds. It doesn't say whether to use GAP or not.

[QDROphile]

Step back further. You don't need to use specific terms unless EPCRS specifically addresses your circumstances.

[fiona1]

Sorry. I'm not following. Are you saying that I can calculate earnings on 415 refunds anyway I like because the EPCRS doesn't specifically address my circumstance? With my circumstance being the calculation of earnings on 415 refunds?

I'm just really confused on whether GAP needs to be included on 415 refunds. The regs are silent. The EPCRS is silent. The plan document is silent. You have Sal's book that says ""The longer the delay in making the distribution (415 refund), the more earnings will have to be distributed as well." - which leads you to believe that GAP should be included.

I'm just confused...

[QDROphile]

The general principle under EPCRS is that earnings are taken into account until the correction is effected.

[TPApril]

New but related question on existing thread:

Issue is the match formula was applied wrong to some employees so they received more match than the formula allows. Plan is going to move these amounts to forf acct.

Question: should there be earnings and gap earnings applied to these amounts?

[BG5150]

Yes. to your question. Earnings calculated tot he point of correction. Your earnings calc is good for 7 days, so you don't need up-to-the-minute earnings.

However, be careful of your correction.

The excess allocation (with earnings) should be moved to the 'suspense' account (EPCRS's term), and those funds can ONLY be used to offset the next Employers contribution. In fact, EPCRS says that no other ER contribution can be made until those funds are exhausted.

I know circumstances often dictate that the funds are moved to the plan's "forfeiture" account for lack of a suspense account. But be careful not to use those funds for fees.