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TH, QNEC, Gateway, 401(a)4 - all the fun stuff


TPAnnie

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My cross-tested 401k PS plan is top heavy and fails the adp test. Eligibility is: k - immediate; PS - 1 year dual, 1000 hours and last day required; QNEC - 1 year dual.

4 ees; 2 hces 2 nhces (1 nhce is t<501, so no TH or PS for her)

A 5.48% qnec satifies ADP test.

qnec satifies TH.

qnec can be used in Gateway.

qnec cannot be used in 401(a)4.

Relius is giving me 2 issues:

1) It's putting my t<501 into 401(a)4 (but correctly excluding her qnec)

2) It's putting my t<501 into Gateway test as a 0, incorrectly excluding her 5.48% qnec

Am I right, t<501 shouldn't be in either 401(a)4 or gateway?

But, even if she was in gateway, can't her qnec count towards it?

the non-discrim test page that shows employees included/excluded under IRC 410(b) shows "term" under remarks, which may or may not be correct - I'm not sure. But the page that shows who benefits has a "yes" under benefiting 401(a). I'm thinking it should show *** for excludable...what do you think of all this? Am I way off base, or is Relius screwing up?

thanks!

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at the ASPPA conference this year, Q and A #6 pertaining to DC plans, it was indicated that a QNEC can not be used for gateway e.g. perform triple duty (unless the plan was safe harbor).

I have always been unclear on that, would have leaned the other way, but that shows what I know about some of that stuff. of course IRS statements at such conferences do not necessarily represent an exact position.

once the NHCE receives a QNEC, then she has received a nonelective, so gets involved in the gateway. and based on the IRS statement she would have to get the gateway in addition to the QNEC.

as for testing involving QNECs, you have to run one test with QNECs and another one excluding QNECs.

I am not sure whether the system does that yet or if that is the next update. read something about Relius doing that, but I don't remember if its 11 or 12(whenever that may be released)

I think, since she had less than 500 hours, when you test nondiscrim excluding QNEC, you could exclude her.

When testing with a QNEC she would have to be included, but maybe plan would pass using allocation method and so gateway wouldn't be an issue. well, I think that is how it would work, but I haven't worked on any plans that actually end up with a QNEC, so I could be wrong. you definitely have to run two tests, but what happens when one person is not eligible for the profot sharing or top heavy is unclear.

as for who is benefiting, if ee received QNEC then they are benefitting.

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Ok, well, darn it, it was easier to blame quantech than myself!! Heeding your advice, the software is now matching everything I'm doing. We're at version 11 and I was not able to get it to run both in and out automatically (of course, it may be possible and I'm just clueless), but it was easy enough to run with and without myself and pick out what I needed.

This plan actually had the same issues last year. (But I'm not going to look at that too closely...)

I appreciate your help! Thanks!!

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