Depositing Lost Earnings

[Planadmin456]

Our Plan is owed lost earnings due to a series of delayed contributions from a number of years prior. We are not doing VFCP. What is the best way to deposit lost earnings into the Plan? Should it be deposited into a forfeiture account, or directly into the accounts of individual participants?

For former employees who no longer participate in the Plan, should the payments be issued to their last known address?

[BG5150]

I would put it right into their accounts.

For the previously-paid out participants, If the amount is less than $200, send a check to last know address (after, of course, reopening the account) with a letter stating they have 60 days to roll it over. Well, it depends on how long ago they got paid out. people do move. Use yuor best judgement.

For people over $200 and whose distributions were more than 180 days ago, I would send new paperwork. Less than 180 days, send check in same manner as the last distribution.

[hr for me]

I agree that it is owed to the participants who were eligible and participating at the time that the earnings should have been received. However, I do have to wonder what formula you are going to use to give it back to them.

What does the plan use the forfeiture account balance for? Because it seems like that solution would only give $s back to the current balance holders/employees.

How many participants does it affect and what average amounts are you looking at per participant? What is the earliest distribution that would be owed a check? (how long ago do you have to go back?) If it's too long and the checks are very small, you might end up with quite a few stale/returned checks that you then have to deal with in a different way.

[Planadmin456]

The amounts will be rather small - around $50 per participant. This is a small plan, as well. The amounts are associated with delayed contributions as far back as 2010, but most pertain to the 2012-2013 time frame. Does that change the analysis at all?

Should we send a letter to all current Plan participants to describe the nature of the lost earning contribution?

It looks like the credited response is to contribute the amounts directly into the participant accounts who were eligible and participating at the time that the earnings should have been received, and send checks to last known addresses for former participants. Is the roll over letter required for all former participants?

Also, are the Form 5330 excise taxes triggered?

[BG5150]

A rollover letter is not needed for balances under $200, as no taxes are withheld and the entire amount is paid to participant. You may want to add something like they have 60 days to roll the money into an IRA (or another QP) to get favorable tax treatment.

All others must be given a 402(f) Notice along with the distribution paperwork and an explanation of what will happen if they don't respond timely.

[K2retire]

and send checks to last known addresses for former participants.

Just to be clear, those checks are sent from the plan accounts that you will have to re-open -- not directly from the employer.