Allocating earnings on pooled acct Money Purchase

[kwalified]

hi,

a small calendar year MPPP that was frozen mid plan year 2010 had a new participant in 2010 that received their first and only contribution. The 2010 contribution was not funded until Sept. 2011.

Let's say the new participant's contribution for 2010 was $1000, so at 12/31/10 his account balance was $1000. Historically, the plan has allocated earnings on an account percentage based on the beginning account value. Since the participant was new in 2010, he received no yield. The sponsor requested 2011 interim statements as of 8/31/11, therefore the participant had a beginning account percentage based on his 2010 contribution of $1000. Since the plan lost funds for the first 8 months we allocated a loss to his account, though technically the 2010 contribution had not been funded. How erroneous is this? The investments are pooled and the document states earnings are allocated using a weighted average. Should we have excluded the participant from allocating a loss to his account and just gave the older participants a greater share of the loss? For plan and reporting purposes, the 2010 contribution receivable was considered a plan asset.

Thanks in advance for your thoughts.

[ESOP Guy]

This used to come up all the time in balance forward plans when the market moved one way or another in a big way.

The simple answer is "you follow the document". So use whatever weighted average the plan calls to use and use it. And I suspect that the plan says you start with beginning balance and the cont rec'ble was part of the beg bal. If this guy shared in a loss on his cont rec'ble that is how life works. If it had been a large gain he would have shared on the gain.

It really is follow the document, follow the document.... in this case let the numbers fall where they fall and don't over think it.

edit:

typos that made my 1st answer almost unreadable.

[Bird]

IMO accrued contribution is an asset and needs no special treatment; this participant shares in the loss (or gain). To do otherwise would not only be wrong (unless the document has special language, which I doubt it does), but unwieldy, to say the least.