ECPRS / Gains Adjustments for over-deposits

[austin3515]

When a participant has a small voer-deposit, and there have been gains, in lieu of calculating the applicable gains can we just withdraw the principal?

I looked it up in the EOB so I think the answer is no, but the terminology is throwing me a little because I'm referring to a "corrective distribution" just an overdeposit.  I assume there is no distinction, but asking anyway because we do spend a lot of time making sure we take as much money as possible from an NHCE which seems silly.  

6.j.(1) Losses. If the Earnings are negative, a corrective contribution or allocation does not have to reflect a net loss incurred under a defined contribution plan. See section 6.02(4)(a) of the EPCRS Procedure. Note that this exception to reflecting a loss applies only to a corrective contribution or allocation. A corrective distribution is required to reflect net losses.6.j.(1) Losses. If the Earnings are negative, a corrective contribution or allocation does not have to reflect a net loss incurred under a defined contribution plan. See section 6.02(4)(a) of the EPCRS Procedure. Note that this exception to reflecting a loss applies only to a corrective contribution or allocation. A corrective distribution is required to reflect net losses.

[Mr Bagwell]

We do the best we can to remove the over-deposit with earnings.  The premise is to make the particiapant and plan whole as if no error had occured.

The section of EPCRS your post sites talks about removing the gains.  It also speaks of not removing the losses as you point out.

And I agree, too much time is spent fixing these types of errors.

[BG5150]

Basically, it's saying if you have to make a corrective contribution and it's $300, and there's a loss of $20, you can either deposit $300 or $280.  However, if there is a corrective distribution of $300 with a $20 loss, you distribute $280.

Just my take. 

[austin3515]

That's exactly what it says.  But by the transitive property, wouldn't the same logic suggest that if someone had $300 extra deposited to their account there is no need for me to take out $320 (assuming NHCE)?

Sure would be nice to be nice to the employee...  Oh and by the way save a lot of time!

[Luke Bailey]

austin3515, for what it's worht, I think the IRS's logic is that you want to take things back to where they would have been, thus the adjustment, generally, for gains or losses. But in the case of an undercontribution, the amount was not in the account, so arguably there is no harm not adjusting for a loss that, in fact, did not occur. In fact, the employer had the benefit of the funds for the period before correction. So I think it does make logical sense, even if it does not seem in all cases practical.