Excess deferral earnings calc

[Guest JWR]

WRERA eliminated the need to distribute gap period earnings on excess deferrals and contributions. Therefore earnings only need to be calculated for the plan year for which the contributions were made, correct? Is there an exception for plans that are daily valued? I have seen numerous articles saying that the elimination of gap period earnings only applies if a valuation date has not passes. Any assistance will be appreciated. Thanks

[Lou S.]

My understand is that PPA eliminated it for most and WRERA (or PPA technical corrections) extended to excess deferrals that gap period income is no longer required. If your amendment(s) eliminated gap period income you no longer calculate it; but you could have kept the langauge for gap period income without it being a disqualify defect. That is you could make an optional election to keep gap period income.

I don't think valuation method: daily, monthly, quarterly, annual or other changes this.

Anyone have anything contray to this?

[fiona1]

I was under the impression that GAP wasn't an option. PPA said that ADP/ACP refunds should not include GAP. The plan can't be written to allow them. The same applies to Excess Deferrals - with the PPA technical correction. Again, this is just my understanding. I agree that the valuation doesn't change anything...

[Guest JWR]

Thank you everyone. This is just such a wide shift from the usual IRS approach to corrections that I wanted to make sure I was reading the regs. correctly.

[Lou S.]

fiona, thanks for the clarification. we amended out for everyone and couldn't understand why anyone would want to put themselves through gap period income if they didn't have to but I thought it was still optional, guess I was wrong on that.

[fiona1]

Section 902(e) of PPA amended Code section 401(k)(8)(A) to add "through the end of such year". So this section of the Code now reads: the amount of excess contributions for such plan year (and any income allocable to such contributions through the end of such year) is distributed.

The same change was made to 401(m). So to me (for ADP/ACP refunds anyway), GAP is not an option. The refund only includes earnings up to the end of the plan year.

[Übernerd]

Section 902(e) of PPA amended Code section 401(k)(8)(A) to add "through the end of such year". So this section of the Code now reads: the amount of excess contributions for such plan year (and any income allocable to such contributions through the end of such year) is distributed.

The same change was made to 401(m). So to me (for ADP/ACP refunds anyway), GAP is not an option. The refund only includes earnings up to the end of the plan year.

I'm wondering if the revised language in the Code prohibits the payment of gap-period income or merely removes the requirement that it be paid. I'm looking at a plan that hasn't been amended to delete the requirement (for either ADP/ACP or 402(g)). Is that a nonamender failure, or have they just been doing more work than they had to? It's a significant question because, if it's a failure, the d-letter application has to go through VCP first. Has the IRS ever spoken to this question directly?