Late ADP Failure Refunds

[perkinsran]

We have a client that failed their ADP test in 2006 but the prior vendor never corrected the problem. The SCP allows us to fix the problem but the issue becomes the calcuation of gains/losses. Rev Proc 2006-27 (Haven't read 2008-50 but I assume it is similar) appears to allow for actual gains and or losses to be used for the refund as well as the One to One Correction Method for the contribuiton to NHCEs. The prior vendor is claiming Gap period methodology must be used for the period after 12/31/2006 based on 2006 earnings. It makes a huge difference since the funds lost significantly since 12/31/2006. Any ideas as to solution?

[BG5150]

I was always under the assumption (me=ass, perhaps!), that gap earnings can be done with acutal gains/losses, and the other way was also acceptable, kind of like a safe harbor (for lack of a better term). I would thinkt he latter helps with balance forward plans, since earnings are only done a few times a year.

[Kevin C]

What gap period earnings allocation methods are allowed in the plan's final 401(k) & 401(m) regulations amendment?

[perkinsran]

I think that is the real question. Since we have already violated the terms of the plan by not refund failed ADP test in time, can we simply follow the rules of EPCRS and use actual gain and/or losses.