If an employer botches your 401(k) — misses your deferral election, applies the wrong match formula, leaves you out of the plan entirely — the fix is not just the money you should have had. It is that money plus earnings, calculated from the date of the failure to the date of correction. For a failure caught after a few years, the earnings piece can be larger than the contribution itself.
So which rate gets used? Revenue Procedure 2026-34, published in Internal Revenue Bulletin 2026-46 on November 9 and generally effective October 22, 2026, rewrites the Employee Plans Compliance Resolution System (EPCRS) and supersedes Rev. Proc. 2021-30. Buried in its request for comments is an unusually candid acknowledgment that the current answer is gameable.
Two Methods, and the Sponsor Picks
The default is actual earnings. EPCRS safe harbor methods are "based on actual earnings of the applicable account, fund, or plan." But if it is not feasible to make a reasonable estimate of what the actual investment results would have been, a reasonable interest rate may be used instead — and the Labor Department's Voluntary Fiduciary Correction Program Online Calculator is deemed reasonable.
That calculator runs on IRS underpayment rates. Per the revenue procedure, it uses the § 6621(a)(2) rate (the federal short-term rate plus three percentage points) when lost earnings do not exceed $100,000, and the higher § 6621(c)(1) rate (another two points on top) when they exceed it. For the quarter beginning October 1, 2026, those are 7% and 9%, compounded daily.
Note also what EPCRS says about down markets: a plan sponsor "may, but is not required to, adjust for losses."
Put those pieces together and the asymmetry is obvious. Treasury and the IRS said so themselves, writing that the calculator rate "may be too low as compared to average rates of return for private defined contribution plans over recent periods," and that it "would be inappropriate to permit Plan Sponsors to choose to calculate earnings based on the DOL Online Calculator during periods of high returns and to use actual earnings during periods of low, or even negative, returns."
The Proposed Fix: A Floor
The proposal has two parts. First, a new safe harbor permitting the higher § 6621(c)(1) rate. Second — the part that matters to participants — a requirement that the calculator's rates serve as a floor, "a minimum amount of earnings," for all corrections of operational failures in defined contribution plans that increase account balances, even when the sponsor uses some other safe harbor method.
There is a small comic footnote to all this: the DOL calculator cannot actually produce the § 6621(c)(1) rate on demand. The IRS suggests an "artificial entry" to force it — enter $100,000,000 as the principal, any loss date, and recovery and final payment dates at least a year later — then throw away the dollar figure it returns and keep only the rate.
What This Means Now
- The floor does not exist yet. It is a proposal, with comments due January 20, 2027 (docket IRS-2026-1388). Corrections completed today still run under the actual-earnings-or-reasonable-rate regime.
- Ask which method was used. If you receive a correction notice, the earnings methodology is a fair question. A 7% statutory rate and a diversified fund's actual return over the same stretch are not the same number.
- Deadlines got longer, not shorter. The deemed-reasonable correction period is now the later of the last day of the third plan year following the plan year of the failure, or 18 months after identification — more generous than the flat 18 months in Notice 2023-43. The window for corrective matching allocations after missed deferrals stretched from six months to twelve.
A correction that arrives late and compounds at a short-term-rate-plus-three is still a correction. It is just not necessarily the same as having never been shortchanged.
Sources: IRS Revenue Procedure 2026-34, Internal Revenue Bulletin 2026-46 (November 9, 2026); IRS Revenue Procedure 2021-30 (superseded); IRS News Release IR-2026-98; IRS Notice 2023-43, Notice 2024-2, and Notice 2024-77; U.S. Department of Labor, Voluntary Fiduciary Correction Program Online Calculator.