VFCP Application - Demo of Lost Earnings

I'm curious how much detail EBSA requires on a VFCP application for Lost Earnings?

Whereas we have individual amounts that were calculated by the recordkeeper for each period, the recordkeeper will not provide their actual calculation, ie how they calculated it.

Per application requirements, is it sufficient to just submit the individual lost earnings amounts that were deposited for each late contribution, or do we need more than that?

Here is the link to model VFCP Application Form:  

https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/vfcp/model-application-form

Note the item 6 says:

"6. Specific calculations demonstrating how Principal Amount and Lost Earnings or Restoration of Profits was calculated: (if the Online Calculator was used, you only need to indicate this and attach a copy of the “Printable Results” page, attach separate sheets if necessary)

• Online Calculator (“Printable Results” page attached)   
• Manual calculation (see attached calculations)"

You can try submitting just the results, but you likely will be asked to provide more details.  In particular, reporting any negative earnings for any participant very likely is going to attract additional scrutiny.

You do not have to provide the "actual" calculations but you must provide the methodology used to do the calculations, and the tools used. Question though, why aren't you using the Online Calculator?  it is so much easier and often times yields a lower aggregate earnings amount.  Plus you just have to check the box that states you used the Online calculator and provide the printable results page as noted by @Paul I above.  This response assumes as stated in your question that this correction involves "lost earnings" (as opposed to restored profits).  If you still want to use your own calc, the recordkeeper should confirm that its methodology conformed to the methodology required under the VFCP DOL notice and then provide the DOL basically a recitation of the methodology required under VFCP DOL Notice §5(b)(5) as the methodology used (again as confirmed by the recordkeeper).  Federal Register :: Voluntary Fiduciary Correction Program Under the Employee Retirement Income Security Act of 1974 , along with some kind of statement like "The calculations of Lost Earnings as submitted herein were conducted using the proprietary software of our third party recordkeeper _________________, which ostensibly was designed utilizing the methodology described in the DOL Notice for use by its clients to comply with the VFCP."  We did this before when one of the large actuaries did the calculation for one of our largest clients as part of a correction that included thousands of affected employees and many, many different corrective periods.  If the recordkeeper won't confirm that it used this type of methodology, don't use their calculation.

At least one big recordkeeper can process a correction by crediting each specified amount on each specified past date according to each participant’s then-effective investment direction, using each fund’s actual share price or unit value for each date.

If that’s what was done, would EBSA accept that explanation?

For delinquent payments to a Plan trust, we only look to actual earnings if the delinquent payments constitute an operational failure as well as a prohibited transaction.  Delinquent payments do not always constitute both.  For example, if a plan is an individually designed plan that we prepare, the delinquent payments will not constitute an operational failure as we do not include the DOL timing requirements in our documents (i.e., it would not in operation violate a term of the plan).  Also, many prototype plan basic plan documents do not include the DOL timing requirements so there would be no operational failure in those. 

If, however, there is an operational failure because there is a violation of the plan's terms, we advise providing participants with lost earnings in the amount of the greater of (i) the actual lost earnings computed as @Peter Gulia is suggesting and (ii) the lost earnings as computed on the DOL online calculator.  The greater of amount is used to ensure that the correction meets both EPCRS and VFCP.  However, this is extremely burdensome because when doing this the calculations have to be done on a per participant basis (while some affected participants may have had investment gains during the correction period others may have had losses so using lost earnings based on the DOL calculator for those with losses ensures that they receive some payment for the employer's use of the funds).  Where the actual earnings are used for a participant's lost earnings, the VFCP submission would include a statement that the third-party recordkeeper has calculated actual lost earnings based on the participant's actual investments under the Plan from the loss date to the recovery date (or full payment date, if later, for earnings on earnings).  This type of statement has never been rejected by the EBSA in a VFCP submission we have made involving corrections where there were both operational failures and prohibited transactions (this is not saying the EBSA wouldn't reject this type of statement on the next such filing we might submit). 

Note though that if the delinquent payments only constitute a prohibited transaction and not an operational failure, the VFCP guidance does not provide for the use of the participant's actual investment earnings as a methodology for calculating lost earnings (actual earnings would be required if restored profits is required but that would be based on the amount the employer earned by using those funds in a specific investment, etc.).  The VFCP guidance requires lost earnings to be based on the Code's underpayment rates. 

A colleague noted to me that I put the link for the 2006 notice when I should have linked the 2025 notice.  Sorry for that but note the substance is the same. Different subsection though §5(b)(6) instead of (5). See Federal Register :: Voluntary Fiduciary Correction Program

As alluded to above, what one agent will agree to may not be the same as what another agent will require.... depends on if they spilled their coffee going into work that morning or some other arbitrary happenstance....

Thank you very much!

To answer your question of why the DOL Calculator was not used - the calculations were performed by the bundled recordkeeper a few years ago, and only recently presented to an outside consultant to have a VFCP prepared for the plan.