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Lost Earnings Formula:
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The Lost Earnings calculation determines the amount of investment returns that were missed due to delayed contributions or improper handling of 401k funds. It calculates what the principal amount would have earned if it had been properly invested.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates the compound interest that would have been earned on the principal amount over the specified number of periods at the given rate.
Details: Accurate lost earnings calculation is crucial for 401k plan administrators to rectify fiduciary breaches, ensure proper participant compensation, and maintain regulatory compliance with ERISA requirements.
Tips: Enter principal amount in USD, rate as a decimal (e.g., 0.05 for 5%), and number of periods. All values must be valid (principal > 0, rate ≥ 0, periods ≥ 1).
Q1: When is lost earnings calculation required?
A: Lost earnings must be calculated when 401k contributions are delayed, improperly allocated, or when fiduciary breaches occur that affect participant returns.
Q2: What rate should be used for calculation?
A: Use the plan's actual rate of return or a reasonable benchmark rate that reflects what the funds would have earned if properly invested.
Q3: How are periods determined?
A: Periods represent the number of compounding intervals the funds were unavailable for investment, typically measured in months or years.
Q4: Are there regulatory requirements for this calculation?
A: Yes, the Department of Labor provides specific guidance on calculating lost earnings for ERISA compliance under the Voluntary Fiduciary Correction Program.
Q5: Can this calculator be used for other retirement plans?
A: While designed for 401k plans, the calculation method can be applied to other retirement plans with similar compound interest-based earnings.