Recordkeeper pays missed earnings?

[cathyw]

Due to an error by the recordkeeper, the vested benefits paid to many terminated participants were understated and balances that should have been vested were forfeited.  This occurred for several years and we are now filing a VCP application to correct.  The participants' accounts will be reopened and the restoration of the vested benefits will come from the plan's forfeiture account.  The missed earnings will be calculated based on the plan's rate of return for the intervening years.  The recordkeeper has acknowledged responsibility and will pay for the missed earnings amount.  

Can the recordkeeper just fund the missed earnings directly (i.e., deposit the amount into the participants' accounts)?  Alternatively, should the earnings also be restored from the forfeiture account and the recordkeeper then reimburse the plan sponsor outside the plan?  

Any downsides to the two approaches?

Thanks for all input and/or past experiences.

 

[CuseFan]

Personally, I would want the forfeited accounts restored from the master forfeiture account to the extent sufficient, any additional forfeited accounts made whole by the plan sponsor (if necessary), and the lost earnings directly restored to such accounts by the entity responsible for the error and correction - in this case the RK. But I don't see a huge advantage/disadvantage of one method versus the other, unless someone else (TPA) then has to allocate lost earnings from forfeiture account to move them into accounts.

[cathyw]

Thanks.  I guess my concern regarding the RK depositing the missed earnings into the plan (and then directed to the appropriate participant account) is what citation would allow a non-plan sponsor to make such a contribution to the plan?  Could it somehow be deemed an extension of credit between the plan and a party-in-interest (the service provider) since ultimately it's the plan sponsor's responsibility to operate the plan properly?  Would it be cleaner to have the RK reimburse the plan sponsor outside the plan?

[CuseFan]

21 hours ago, cathyw said:

Would it be cleaner to have the RK reimburse the plan sponsor outside the plan?

Maybe, but don't service providers who handle funds (RKs, corporate trustees, custodians) sometimes make mistakes and then directly correct them? Things like errant transfers, mistaken deposits, fee withdrawals from the wrong plan, etc.? Yes, the plan sponsor is ultimately responsible, but wouldn't direct RK corrective action provide a paper trail that mitigates that somewhat? As I said, personal preference and not so much a strong recommendation - the main thing is that the corrections get done timely, completely and accurately and there is sufficient documentation as to precisely how.