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minimum gateway for participant only entitled to top heavy?


betheeg

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regs require all benefiting participants (nonelective contributions) to receive the gateway minimum

employee received top heavy, which is a non elective contribution

conclusion: ee is entitled to the gateway

possible exception #1: ee can be treated as an otherwise excludable

possible exception #2 (sort of) : ee entered plan mid year. the gateway minimum can be based on comp from date of participation. In that case the top heavy is more than the gateway minimum so no bumping up is needed.

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if plan had immediate entry for deferral, then plan benefits employees who have not met the minimum age and service requirements. the plan may be treated as 2 separate plans, and the otherwise excludable group doesn't have to provide the gateway unless there is an hce in that group

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  • 5 weeks later...
Guest chris4013

Tom, Can you help me out here.

I don't understand how an ee only eligible for the 401(k) can receive the PS gateway. I haven't been able to find where this is so.

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Chris, if the plan is top heavy any non-key participant eligible for the plan would need to receive the top heavy minimum. Then, depending on how the cross-testing was performed, with or without the statutorily excludable participants, determines whether or not the participant who was only eligible for the 401(k) portion would need to receive the gateway.

"What's in the big salad?"

"Big lettuce, big carrots, tomatoes like volleyballs."

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Guest merlin

Here's a slight twist:

A top heavy plan uses 21/1 for deferrals and nec (no match),quarterly entry for deferrals, semiannual for nec. Participant enters 4/1/02 for deferrals, 7/1/02 for nec. Plan allocates nec on comp as a participant. What comp from what date for what purpose?

T/h min based on full year's comp-no question.

Nec allocation and 1/3 gateway from 7/1?

5% gateway from 4/1?

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Merlin, I would think that the deferrals are irrelevant other than to generate the need for the top heavy contribution. They are mandatorily disaggregated for 401(a)(4) testing purposes.

The gateway would be based upon pay as defined for nec purposes, although to be safe I would make sure it is at least 1% of pay for the entire year (i.e. 1/3 of 3% assuming 3% is the top heavy minimum).

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Merlin, the gateway is the lesser of 1/3 of the highest HCE's accrual rate using 414(s) compensation or 5% of 415 compensation. Both amounts need only use compensation from the date of plan entry for the nonelective portion of the plan. (Of course your document would have to conform to plan operation.) So, you wouldn't have different entry dates for the 1/3 vs. the 5%.

Andy, I didn't understand your second paragraph.

"What's in the big salad?"

"Big lettuce, big carrots, tomatoes like volleyballs."

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Guest merlin

Andy and Blinky,

Thank you for your responses. I had been told previously - in a very authoritative manner - that the gateway s/b based on the 4/1 entry. No reasoning, it just is. Your answer and reasoning make much more sense.

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Merlin,

so be careful. the gateway is based on date of participation, but the top heavy is still ytd.

so conceivably, the top heavy minimum at 3% of ytd comp might have given the ee more than the 5% of date of participation comp would. don't reduce the top heavy minimum to the gateway amount.

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Guest merlin

Got it, Tom. But thank you for the reminder. One of the great mysteries of life. When is 3>5?

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  • 3 years later...

For the mid-year entrant you are discussing, Person hired 06/15/05. Enters 401k 1/1/06 and PS 7/1/06.

He gets 3% of full year for top heavy but enters PS on mid-year.

Comp for allocations is "While a Participant".

Is the cross testing done with the 3% allocation $ amount and the partial year comp (sort of doubling his allocation)?

For 401k. How do you do the AB%T calc. with the diff periods of elig. and comp and defs. Can you include only the 7/1 - 12/31 comp and defs in the calcs?

thank you.

CBW

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For the mid-year entrant you are discussing, Person hired 06/15/05. Enters 401k 1/1/06 and PS 7/1/06.

You need to check your document. Very few documents define an entry date for 401(k) purposes and a different entry date for PS purposes. Although, generally, the effect is as you describe, the fact is that entry takes place once (obviously as of 1/1/06 in this case) but that eligibility for the PS contribution doesn't mature until a later date.

He gets 3% of full year for top heavy but enters PS on mid-year.

Comp for allocations is "While a Participant".

He is a participant from 1/1/06.

Is the cross testing done with the 3% allocation $ amount and the partial year comp (sort of doubling his allocation)?

I would be surprised if anybody argued for the use of partial year compensation for testing purposes here. About the only way that could be done would be to argue that compensation for the last 1/2 of the year is a 414(s) compensation definition. I don't see it.

For 401k. How do you do the AB%T calc. with the diff periods of elig. and comp and defs. Can you include only the 7/1 - 12/31 comp and defs in the calcs?

Not as far as I can tell.

This is a plan design issue. If somebody enters mid-year and gets a full year top-heavy allocation, one can use mid-year compensation because that IS the compensation earned while a participant. In your case, it sort of (well, a bit more than sort of) works against you because he is a participant for the entire year and the PS contribution is predicated on compensation earned for a period which is less than the entire year. Actually, I'm taking your word for it that the allocation actually works that way. Wouldn't surprise me to find that your document actually has language in it that calls for this person's compensation to be measured from 1/1 through 12/31/06 notwithstanding the fact that you have represented it should only take into account compensation from 7/1 through 12/31. I would be much more inclined to believe that if you were speaking about 2 separate plans. Are you?

BTW, one small correction to the entire thread (going back a few years, I know) is that gateway isn't necessary at all for an HCE, so if top-heavy is 3% of full year compensation, it may be irrelevant whether 5% of 1/2 year compensation exceeds that - but only if the individual in question is a non-key HCE.

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Thanks, Mike. It's 1 plan. From my document:

Compensation Taken into Account. The Employer in its Adoption Agreement Section 1.07 must specify the Compensation the Plan Administrator is to take into account in allocating an Employer contribution to a Participant's Account. For the Plan Year in which the Employee first becomes a Participant in the Plan (or in any portion of the Plan), the Employer may elect to take into account the Employee's entire Plan Year Compensation or to limit Compensation to the portion of the Plan Year in which the Employee actually is a Participant. For all other Plan Years, the Plan Administrator will take into account only the Compensation determined for the portion of the Plan Year in which the Employee actually is a Participant. The Plan Administrator must take into account the Employee's entire Compensation for the Plan Year to determine whether the Plan satisfies the top-heavy minimum allocation requirements ….

Eligibility is 6 months for 401k, 12 months for PS.

You are saying use full year compensation for the 401(a)(4) testing for a person in the k portion 12 months and the PS portion 6 months? If yes, that makes the AB%T simpler, but if no, what comp and allocation do you use for the AB%T?

Thank you.

CBW

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Once more, sorry. This plan was PS only in 2005. Owner only eligible EE. 401(k) added effective 5/1/06. EEs enter 401k on 5/1, PS on 7/1 and plan is Top Heavy.

Would you cross test on 5/1 - 12/31 comp using 3% of full year comp as the allocation? I am solving for the max to the owner based upon the TH min only.

Thanks again.

CBW

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  • 2 years later...

I am adding to an old string.

The participant who gets the 3% top-heavy on full year's 415 comp is in the cross-tested allocation group consisting of the proverbial "others." Now her allocation rate is higher than the others in her group. Calendar year plan, quarterly entry dates. The PSP contribution is counted from date of entry; she entered 10/1/08 after completing a year of service, so her top heavy contribution is greater than her PSP allocation would have been.

The plan does not have a catch-all group since there is no 1000 hour/last requirement, and everyone who is benefitting under the Plan gets the PSP contribution in the percentage allocated to his group.

Even though she gets a slightly higher allocation rate than the others in the group, can she still be in that group (defined as non-physicians)? In other words, can participants in a Participant Group receive different allocations soley because of statutory rules (i.e., top heavy)? There are no HCE's in this Participant Group.

The Plan does contain the gateway minimum language, just no catch-all group.

Make sense? If not, I'll try to clarify.

Thanks.

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In other words, can participants in a Participant Group receive different allocations soley because of statutory rules (i.e., top heavy)?

Absolutely. If there is more to your question then you might try and restate; I could not follow much of it.

Live long and prosper.

Be wary of "the others".

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I agree, no problem. It might help to think of it this way: she is getting exactly what everyone else in her group is getting as a regular non-elective profit sharing contribution. But she's also getting some extra under a different part of the document specifying top heavy minimum contributions.

Ed Snyder

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