Is there a requirement to pay earnings on a participant's account bala

[AmyR]

Has anyone seen a discussion on the PLR 200038051 issued earlier this year which discussed a 401(k) plan's violation of ERISA for failing to pay accrued interest to terminated participants for the period from the plan's most recent valuation date to the date of each participant's distribution? It has been my understanding that 401(k) plan distributions can be based on the last valuation date, as long as the length of time between the valuation date and the distribution isn't excessive. Our documents say that it is up to the plan administrator to determine if a new valuation is needed. Any idea if there is now a requirement to pay a certain interest rate?

[Guest FREE401k]

I would be interested in comments about this too. We have a large quarterly-valued Plan and we pay employment termination distributions based on the value at the end of the previous quarter. We do not pay current quarter interest (but we have suggested to the client several methods to do this). We always pay distributions promptly so there's not an issue with a huge amount of time going by....it is normally about 30-40 days after the end of the quarter when the participants first begin getting their distributions. We pay distributions in response to the written requests we receive from participants, plus at the end of the quarter we also pay anyone we haven't heard from who has a balance under $5000.

[mbozek]

I am curious as to the grounds that the IRS used to find a violation of ERISA which is enforced under DOL rules for fiduciaries. Did the IRS deem the failure to pay interest a loan between the plan and participant in violation of the PT rules of 4975© which requires interest to be paid? Also what was type of investment that required paying interest? Normally mutual funds invested in equities do not pay interest and are valued dialy.

[BeckyMiller]

This letter ruling needs to be read very narrowly. The facts in the ruling were that the valuation date was monthly, but several months would pass from the valuation date until distribution without any allocation of earnings. So, they were violating the written terms of the document.

If you have quarterly valuation dates and make distributions within 30 or 40 days, you are not violating the document terms.

The enforcement agency was the DOL. The IRS's involvement in the ruling request related to the tax consequences of the restorative payment.