Earnings Rate - Plan Average?

[kmhaab]

Any thoughts on whether the IRS considers the average rate of return for the plan as a whole a reasonable rate to use to adjust earnings on corrective contributions for missed deferrals?  The plan participants had made investment elections, but employer wishes to avoid that level of complexity.  Most participants are NHCEs. 

It seems that many service providers advise clients to use this approach. Any thoughts?

[Madison71]

EPCRS requires a determination of actual earnings show earnings methodology and computations (if applicable).  However, it also states that if the difference between actual and approximate is likely insignificant and the administrative cost of a determination of the actual earnings would significantly exceed the difference, then reasonable estimates can be used when calculating earnings.  I've used both the DOL calculator and the average plan earnings in the past without issue.  In this case, the plan participants made investment elections.  Complexity to calculate alone is not reasonable argument if the difference between actual and approximate is significant.  

 

[AMDG]

If this is an ERISA plan, don't forget the DOL's point of view.  The VFCP requires use of their calculator (in most situations) for the VFCP filing.  It seems reasonable to me to use the calculator, especially if the Plan's Form 5500 shows that there was a delinquent contribution or other prohibited transaction and the DOL follows up.