Lost Earnings on Late Deposits

[DocumentDiva]

we have an ongoing debate in our shop on whether lost earnings on late deposits should be deposited as a contribution to the impacted participant OR as earnings?

I've always had these deposited as earnings and I'm now being told they are a contribution to the participant. I feel silly debating the issue when I feel like the answer is in the what we call them "lost earnings".

[Lou S.]

Earnings. Otherwise how could you possibly make them for someone at the 415 limit?

[RatherBeGolfing]

Earnings. Otherwise how could you possibly make them for someone at the 415 limit?

The argument, as I have seen it before, is that the earnings portion is deposited as a QNEC contribution.

We do them as earnings, and I have never had an issue with the DOL, IRS, or an auditor (for large plans) doing it that way. I have taken over plans where earnings and contributions due to lost deferral opportunity was deposited as QNEC.

[rcline46]

Make up contributions (failure to withhold) could be a QNEC, but earnings are earnings.

[Jim Chad]

Agreed. Earning are earnings.

[Tom Poje]

I suspect in many cases they might show up at the asset house as a 'contribution', but they are still earnings

[Jim Chad]

I agree with Tom. I have seen it show up as a contribution. But on an audit, I would have no problem explaining why I did not count earnings in the 415 limit.

[K2retire]

I am told that some record keepers can only post incoming deposits as contributions. Empower assures me that when they do that it is not included in the contribution total for 402(g) or 415 purposes. Not sure if they all keep that straight or not.

[DocumentDiva]

Thank you everyone for your input.

I agree that I've seen the record keeper include it as a contribution even when I submit them as earnings and I still count them as earnings and would explain the same to an auditor.