Application of Earnings on Excess 415 limit Correction

[Dougsbpc]

A participant in a 401(k) plan ended up with lower than expected salary and consequently violated the 100% of compensation limit.

This is a 415 violation and we are in the process of correcting this by forfeiting some of his employer contribution allocation from last year and refunding some of his salary deferrals. The participant is an NHCE.

In applying the earnings on the corrections, we are lucky because the plan has self-directed investments that make it easy to determine the applicable earnings.

Question: suppose his account has 11% losses. Can we apply those losses to the $4,000 of salary deferrals to be refunded and $3,200 of employer contributions that will be forfeited and kept in a suspense account? I would think this should be ok, especially since he is an NHCE. Does anyone else agree / disagree?

Thanks!