FAQ 45: ADP--Earnings on returned deferral exceeds deferral amount


I am working on a plan that needs a refund done to pass the discrimination test. When I run the test, the refund is around $1,600 and the gains on the refund are $3,500. This is not possible since his total earnings on deferral don't even total that much. What am I doing wrong?


The balances on this HCE must be either incorrect (e.g. junk values) or else contain a relatively large withdrawal or transfer out. The formula the system uses to calculate the earnings is as provided in the original regs, which doesn't directly address withdrawals and transfers, causing some odd results in this scenario.

The calculation is done by source, then broken down by fund.

Total Excess Contribution Interest = Excess Contribution Plan Year Interest + Gap Period Interest

Excess Contribution Plan Year Interest =
[(Excess Contribution*Plan Year Interest) / (Ending Balance-Plan Year Interest)]
The denominator in the above can have withdrawals added back, if the user de-selects the ADP
setup question "Include Withdrawal in Interest Calculation".

Gap Period Interest = Excess Contribution Plan Year Interest*10%*#months

We have an ADP option "Include Withdrawal in Interest Calculation", that can be unchecked to disregard the withdrawals. This may give you the results you expect.