Corrective Distribution and Related Match

[DTH]

If a plan is distributing an excess deferral or excess contribution that has a related match should earnings/losses be calculated on the forfeited match?

The regs don't seem clear so it appears that the plan document would control.

Thanks!

[Below Ground]

You are not supposed to make that match. Matching contributions are not computed using excess deferrals/contributions.

[Lou S.]

You are not supposed to make that match. Matching contributions are not computed using excess deferrals/contributions.

But it is quite common you have related matching contributions to excess contributions, especially in a per pay roll matching situation.

As for the OPs question it is a good one. I don't know the answer but first, check the document to see if it is addressed and second what ever method you do use, document it for future consistancy.

For what it is worth, I think gain/(loss) should be attributed to related forfeited match but I don't have a refereance for you, it just seems the most consistent with how other excess deferrals, contributions, aggregate contributions and annual additions are treated.

[Tom Poje]

while the code or regs do not specifically address the issue of earnings (even the ERISA Outline book makes a note of this), under EPCRS Appendix B 2.01(1)(b)(iii)(B) specifically states "any matching contributions (adjusted for earnings) are forfeited in accordance with code section 411(a)(3)(G)"

emphasis mine.

[30Rock]

Doesn't this match go into the plan's forfeiture account, not to participants. Does it really matter whether you credit earnings?

[Tom Poje]

suppose you were a new HCE, deferred 1000 received 1000 match. were credited with 50 in gains on the match.

for the sake of the argument further suppose all the match was related.

are you implying that you only forfeit 1000 in match and keep the gains?

lets suppose the match actually lost $50.

since the related match was 1000, I guess you need to come up with an additional 50 to cover the loss.

[ESOP Guy]

Doesn't this match go into the plan's forfeiture account, not to participants. Does it really matter whether you credit earnings?

The easiest way to think of this is to remember the goal is to get the person back to where they would have been if the extra match wasn’t ever put into the account. That is clearly the IRS goal with the correction methods.

With that in mind it becomes clear why the earnings should come out with the forf. match. The only way to get a person’s account back to where it would have been if the match had never gone into the account in the first place is to adjust for earnings.

To Tom’s example I have always understood it if $1,000 in match needs to come out but the earnings was a $50 loss you would only take out $950. Once again that puts the account back where it would be if the “error” had never happened in the first place.

A person should neither benefit or be hurt by a mistake including too much match because of a test failure.