How Do I Use the DOL’s Lost Earnings Calculator?
The Department of Labor (DOL) requires employers to remit employee contributions to the plan’s trust as soon as they are able to reasonably segregate the contributions from the company’s general assets. For many employers, this timeframe could be as little as one or two days. For contributions remitted beyond the “reasonable” timeframe, employers are required to calculate and deposit lost earnings to the affected employee accounts. This is true even if the employee would have lost money had the contribution been deposited in a timely fashion because the company is considered to have use of the employee’s money (i.e., a loan). Generally, employers must also pay an excise tax and file form 5330 to the IRS. This delinquency in depositing employee contributions to a plan is a “prohibited transaction” that should be taken seriously by a plan sponsor/employer. Employers may also take advantage of a formal program offered by the DOL known as the Voluntary Fiduciary Correction Program (“VFCP”), through which the untimely deposits can be reported and corrected, and related excise taxes can be avoided.
To assist employers in calculating the amount of lost earnings due to the plan, the DOL website provides an online calculator as a compliance assistance tool. Use of the calculator requires the Principal Amount (amount of contributions not remitted timely), the Loss Date (the date the contributions should have been remitted pursuant to the employer’s determination of a reasonable timeframe from payroll date), the Recovery Date (the date the contributions were remitted) and, the Final Payment Date (the date lost earnings will be remitted to the plan). The online calculator computes a total of lost earnings that must be paid to the plan. Each year the lost earnings are not contributed to the plan, a new prohibited transaction arises upon which interest compounds.
The online calculator as well as more information about the VFCP can be found on the DOL's website