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Gateway Determination in Cross Tested 401kPS with SH Match


cheersmate

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What is the Gateway Minimum for the NHCEs in the following scenario?

HCE is receiving the Safe Harbor Match (capped at 4%) and a 10% Profit Sharing Allocation.

Assume NHCEs did not receive any SHM because did not defer any 401k. Also assume 401(a)(4) testing is passed with as little as a 3% PS allocation to the NHCEs.

Is the Gateway Minimum additional allocation requirement 0.34% (3%PS + 0.34%GW = 3.34% * 3 = 10% PS allocation to HCE)?

OR

Is the Gateway Minimum additional allocation requirement 1.67% (3%PS + 1.67% GW = 4.67% * 3 = 14% total SHM+PS allocation to HCE)?

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Matching contributions are not included in determining the highest HCE rate of nonelective allocations for determining the gateway minimum.

Thus, the gateway minimum is 3.34% of the plan's definition of compensation for nonelective allocation purposes. This is 1/3 of the highested nonelective allocation given to any HCE in the plan.

If the highest HCE nonelective allocation was over 15%, then the 5% minimum gateway applies, but that is generally 5% of total compensation, not of plan-defined compensation.

However, if no nonelective is allocated to an NHCE, then no gateway applies to them. For example, if the plan is top heavy and an employee quits before the last day, and your plan has each participant in their own allocation rate class, and if coverage can still pass the ratio percent test for the nonelective portion of the plan with this employee getting a zero, and if they are not getting any forfeiture allocated as a nonelective, then because no nonelective is allocated to them, no gateway applies. But any allocation at all to such NHCE thus triggers the full gateway requirement for them.

Reminder, as I can tell you know, but perhaps for some other readers here, the gateway merely allows the plan to test the allocations as benefits payable as annuities at the testing age. Merely providing the gateway does not mean the plan actually passes the 401(a)(4) test.

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If the highest HCE nonelective allocation was over 15%, then the 5% minimum gateway applies, but that is generally 5% of total compensation, not of plan-defined compensation.

Note that final regs 1.404(a)(4)-8(b)(1)(vi)(B) allows for the 5% test using 415 compensation over the portion of the plan year that the participant is eligible.

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Right, using comp prior to entry or not is a plan provision and can be excluded regardless of whether the1/3 gateway or the 5% gateway applies.

I was trying to point out the difference between the compensation definition that can be used for the 1/3 gateway vs. the compensation definition that must be used for the 5% gateway. For example, if the plan excludes bonuses, then you can use that for the 1/3 gateway, but the bonus can't be excluded if the 5% gateway applies. Just a minor point.

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