Late deferrals: calculating lost earnings

[BG5150]

Often, when there are late deferrals to a plan, TPAs are using the DOL VFCP calculator to determine lost earnings.  I understand that's only allowable if the Sponsor is filing under VFCP.  And if not submitting, they must use EPCRS to determine the earnings.

The first and best option is to calculate actual earnings for everyone involved.  Than can get hectic if there are more than a few participants involved, or multiple payrolls.  Hectic and pricey--we charge by the hour, and the cost can easily overtake any benefit to the participants.

We may have a way to calculate the Rate of Return (RoR) individually for each payroll, rather than exact earnings.

My question is this:  Is that enough?  Using the RoR per participant (and if unavailable, the RoR for the during the same timeframe?)

The DOL calculator determines not only lost interest, but the interest on the interest.  Would I need to do TWO calculations?  First determine lost interest from payroll date to deposit and then another from deposit until 'today'?

How do you guys do it?  Several colleagues at other firms just take the path of least resistance and still use the DoL calculator.

I haven't heard anyone getting in trouble for doing it that way.  Have you?

[EBP]

On 12/16/2025 at 4:25 PM, BG5150 said:

The DOL calculator determines not only lost interest, but the interest on the interest.  Would I need to do TWO calculations?  First determine lost interest from payroll date to deposit and then another from deposit until 'today'?

Yes. If using rate of return, we always calculate earnings from date deposit should have been made until date deposit was made, and then earnings from date deposit was made until date earnings are deposited (as close as we can, as it's not always possible for the client to deposit on the day we calculate through).

Under EPCRS, you must restore the participant to the place they would have been had no failure occurred, which means you must deposit earnings on earnings, or they've just lost that opportunity.

Also, the DOL has been VERY clear that the DOL calculator can only be used if a VFCP application is made. However, in a down market, we have occasionally calculated both ways (individual ROR and DOL calculator) and if the calculator amount is higher, we may choose to use that.

If you don't submit a VFCP application but you use the DOL calculator, and the DOL audits and finds that the actual ROR was higher, they could require you to make up the difference. I haven't heard of that happening myself, but I don't want to test that. 

[Artie M]

Hmmmmm.....   The DOL Online calculator is only used for determining earnings on untimely payment of deferrals to the plan trust that violate the DOL rules on when contributions must be made to the ERISA-governed plan.  It can be used for full VFCP and must be used if self-corrected under VFCP.  Right or wrong, many employers will correct the untimely payment of deferrals to the plan trust, calculating earnings using the DOL Online calculator, and not file anything under VFCP (but still file a 5330 paying the excise tax).  We advise clients to do the self-correction notice or file the VFCP if self-correction is not available.  Note though there is no requirement to file through VFCP (the "V" stands for "voluntary").  However, even if not using VFCP, plan sponsors still need to correct the late deposits with earnings and file the Form 5330 to pay applicable excise taxes (though they don’t need to file under VFCP). But like you state, without a VFCP filing, the plan has no authority permitting the use of the DOL Online Calculator to determine the lost earnings. Therefore, earnings should be calculated through an alternative method.  Also, like you state, most practitioners advise using the IRS earnings method from EPCRS instead.  That said, we have also assisted clients with DOL audits where they self-corrected using the DOL Online Calculator without filing under the VFCP and the DOL did not, after some discussions, have an issue with the corrections (even though there was no VFCP filing).  We do NOT recommend using this alternative.

At the onset, your post assumes there is an operational failure under the plan.  We have found that most of the time there is no operational failure for untimely payment of deferrals to a plan trust because most of the plans we work on do not have any language in the plan stating when the contribution is due (other than they must be paid to the plan by the deadline required for the contributions to be deductible).  If a plan does not contain the DOL timing rule or an equivalent, there is no operational failure (i.e., there is a DOL failure but not an IRS failure).  If there is no operational failure, then no earnings are required for EPCRS.  Assuming your plan has an operational failure, then the DOL Online Calculator might be able to be used for EPCRS corrections but only in certain circumstances.

Under EPCRS the options for calculating earnings for late contributions are in order of priority (1) apply the actual earnings.  This may be impractical or impossible, so EPCRS permits reasonable estimates which leads to ..  (2) use the ROR for the best-performing fund in the plan.  The IRS permits this because everybody wins using ROR… except perhaps the plan sponsor--using the highest ROR for the entire period (not separately for each plan year) of failure could prove to be very costly… so it may be more reasonable to…. (3) use the weighted average ROR for the plan as a whole.  As reasonable estimates go, the plan’s ROR can be a justifiable approach.  In other cases, if you must, you come full circle to ….lastly  (4) use the DOL’s Online Calculator.

EPCRS will allow the use of the DOL’s Online Calculator if the probable difference between the actual earnings and the DOL Online Calculator earnings is insignificant, and the administrative cost of the actual calculation would significantly exceed the probable difference.   This sounds counterintuitive since being able to determine that there is an insignificant difference implies that actual earnings can be calculated. Yet EPCRS allows the use of the DOL Calculator, acknowledging that paying the service provider for a precise computation could outweigh the benefit of a small difference.  This could happen when a) plans have self-directed brokerage accounts; b) 403(b) plans having participants with separate individual accounts; c) documents/info is unavailable, e.g., plan sponsor is bankrupt or out of business, natural disasters; and/or d) there are changes in service providers, which can all render it impossible to compute actual returns or even ascertain the best-performing fund.   If you get to this point, the plan may use the DOL’s Online Calculator. In every other case which is usually the norm, the plan should use one of the other alternatives for determining earnings.