Calculation of Highest Performing Fund - Late Deferral Self Correction

[Guest wickedp1]

Hello all!

We have a client that would like to self-correct their untimely participant contribution and loan repayment remittances in lieu of filing under VFCP. The client is well aware of the potential liability they may face in the event of a plan audit should they choose to forego the opportunity of receiving a "No Action" letter from the DOL via acceptance of a VFCP.

As I read in EPCRS, you can use an actual earnings method, or the highest performing fund method to determine the lost earnings on the late remittances. I am probably over analyzing the situation, but would we use the actual performance rates for funds i (i.e. returns published in Morningstar) to determine the highest performing fund, or somehow determine the fund performance within the plan? Depending on fees, withdrawals, contributions, etc., the "Plan" fund returns may be greatly skewed in comparison to actual mutual fund performance for the fund as reported online on Morningstar, Yahoo! Finance, etc.

Additionally, can you pro-rate the highest performing fund percentage? For instance, if the start date of the untimely remittances was 1/21/2013, but I get the highest performing fund for 1/1/2013 - 12/31/2013, can I assume that the contributions were invested for the year from 1/21/2013 - 12/31/2013 at a pro-rated share of the highest performing fund (i.e. contribution was invested at rate compounded over 1/21/2013 - 12/31/2013)?

Any help is greatly appreciated. I am tired of debating with myself on this issue

Thanks!

Wickedp1

[Bird]

I think you'd have to try to figure out the earnings based on the actual returns for the highest-performing fund for the period in question. That's easier for the DOL to say than it is to do, so...well-meaning as it is, I doubt it is done very often. You could probably use any reasonable method to approximate the returns, but the decision-making and calcs involved in approximating can be just as tedious as doing the actual calcs. My guess is most folks use the DOL calculator and move on.

[Guest wickedp1]

Thanks Bird! The highest performing fund is a pain to calculate, especially when fees and dividends are involved. I feel it's actually easier to file through VFCP (aside from the possibility of multiple questions on the items submitted from the DOL).