Is Interest On Late Contributions Needed?

In my opinion, you need to have more to go on than "the market was down." Have the client or investment institution provide you with the rate of interest those participants would have received had the matching contributions been invested in their accounts (assuming participants give investment direction, those rates would likely be different for each participant). It's possible (although maybe not likely) that one participant was invested in a very conservative investment vehicle and had a small positive return. If all of those accounts had investment losses, the safest thing to do may be to not allocate interest on the late matching contributions (rather than reducing the matching contributions for the loss, although there may be validity to that argument). There's no requirement to allocate interest if there is none.

We have done a few corrections where we did not include interest because of negative returns during the period of failure. We always document an EPCRS correction with a memo to the file that describes the failure; gives a detailed description of what we did to correct the failure, including the process, calculations, and other considerations, if any; and recites which sections of EPCRS we relied on in making the correction. And we attach any pertinent calculations or documentation (such as something showing what the interest rates were for each person). This is very helpful for the client to have in case of audit so they can show that they appropriately fixed an operational failure. It's also helpful in cases where there are personnel changes in a company and the new people are trying to figure out what their predecessors did.