VCP Plan Loan Correction - Meaning of Term "Rate of Return under the Plan."

[rocknrolls2]

A client has a number of participants who took out plan loans and then default due either to failure to make repayments or termination of employment. The client is filing under VCP and proposing to correct by reamortizing those loans to allow a longer period of correction for those participants who are within the five-year period for repaying plan loans. According to Section 6.02(6) of Rev. Proc. 2013-12, "the employer should pay a portion of the correction payment on behalf of the participant equal to the interest that accumulates as a result of such failure--generally determined at a rate equal to the greater of the plan loan interest rate or the rate of return under the plan." Does anyone have any thoughts on the meaning of the term "rate of return under the plan?" It might be easiest if the client took the pure earnings amounts on the previous year's Form 5500 and compared it to the beginning plan balance to arrive at the "rate of return under the plan." Thoughts?

[BG5150]

Was there an error here? Or merely failure to pay?

What does the document say about loans to terminated EE's? You can't just re-amortize loans for terminated people just to avoid taxation.

[hr for me]

agree with BG5150 on the correction questions.....on the earnings question -->It is so much harder to do an earnings formula on dailys! Because some how, you have to take into account the mid-year transactions (contributions and loan payments in and distributions and loans out over time). When we used to do quarterlies and most plans added in 1/2 the contributions and loan payments and subtracted out all distributions and loans due to those transactions happening at different times of the quarter.

Earnings from last year are based on more than the beginning balance at the beginning of this year -- those include the contributions over the whole year and don't include loans/distributions throughout the year. Are you able to get amounts for specific periods of time? If so I would tend to do an analysis (at least for each quarter but I would probably do it monthly) and pull an annual from that. And honestly that is a number I'd love to see on a consistent basis anyway to see how the overall plan is performing regardless of funds.