commishvp

Gateway Minimum

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commishvp    0

The cross-tested plan is on a Corbel document and is NOT safe harbor or top-heavy. There is a specific allocation group named sales people(2 fall in this group, 1 HCE and 1 NHCE) who the owner does not want to give a contribution too. Can I give NHCE a 0% contribution and satisfy the gateway minimum (he did work 1000 hours and is employed on the last day of the plan year)?

Corbel amendment states " Any Gateway Contribution made pursuant to this subsection for a Plan Year will be allocated to each NHCE who receives an allocation of other "Employer Contribbutions. It does address that the Gateway be made regardless of accrual requirements, but does not mention if they are in seperate groups.

Can I give him 0% as long as it passes the other non-discrimination testing?

Is an unusual situation as most cross-tested plans are either top-heavy or safe harbor.

Thoughts?

Thanks!

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Mike Preston    256

Works for me. In the unlikely event that the salesperson category is not a reasonable business class for purposes of eligibility testing, you might not have the average benefits test available to you. But if the plan otherwise passes the ratio percentage test, it should sail through.

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ak2ary    1

As long as

-Not required to get a safe harbor contribution

-Not required to get a top heavy contribution

-Not allocated any forfeitures for the year

This class of employees can be allocated a zero contribution without causing the gateway to fail because the gateway only needs to be given to those that benefit under the plan for the year (within the meaning of 410(b))

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AndyH    23

How about a match used to satisfy a top heavy minimum?

I doubt it, but just thought of that, no doubt stimulated by that brightly colored recently quiet stinky fish.

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AndyH    23

Could be merely a relocation or eviction due to a subprime mortgage.

Edited by AndyH

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Guest Dave Peckham   
Guest Dave Peckham

I have a slightly different situation but it falls under the same topic. Client A's 401(k) PS plan document allocation formula establishes a separate class for every single employee. Plan is top-heavy. No other plan. No age, no service required for eligibility. No hours, no last day required for allocation of the nonelective employer contribution. There are 5 NHCE terminees. There are 5 HCEs, none of whom are terminees. No problem giving one of the 5 HCEs a $0 allocation, right? Now, every non-terminated NHCE must get a 3% top-heavy minimum, which then means that they all benefit, which means that they all need to get the gateway minimum (usually this means 5%). But, for this particular plan year, if we look at the 5 NHCE terminees, we see that a 5% allocation is needed to only 3 of them in order to pass 401(a)(4), even if the other two NHCE terminees receive nothing. 410(b) passes by ratio percentage test.

**Does anybody see a problem looking at the plan's terminees and then deciding who needs to get an allocation to pass 401(a)(4)?**

I used to incorporate a last day provision to keep all terminees from getting unwanted allocations. Then, if I needed a terminee to get an allocation to pass 401(a)(4), I used a patch amendment. Three problems: 1) the extra effort and cost (to client) of drafting the patch amendment; 2) the necessity of making sure the particular terminees included in the patch amendment were at least partially vested (to satisfy Reg. Sec. 1.401(a)(4)-11(g)(4)); and 3) the extra effort to determine if it was necessary to shift the deduction for the "patch" portion of the contribution to the following year.

Now, I can eliminate the document's last day provision and still potentially give ALL my terminated NHCEs a $0 allocation.

Right?

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Trekker    1

I am where Young Curmudgeon was on his first Jan 23 post.

I thought all NHCEs who satisfy the accrual requirements had to get as a minimum the lesser of 1/3 or 5% in order for cross-testing to even be considered. This NHCE has satisfied the 1000 hour/last day rule, but gets nothing.

I understand the part about participants not being entitled to a gateway contribution if they do not get a top-heavy minimum or non-elective safe harbor or forfeitures, but I thought that applied only to participants who did not satisfy the 1000 hour/last day rule. This is what we call the "catch-all" group. If the catch-all group did, for example, get forfeitures, then they would be considered benefiting and would get the gateway.

I'm not an attorney or TPA, but nevertheless wanted to throw my two cents in.

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AndyH    23

"I am where Young Curmudgeon was on his first Jan 23 post."

Well, that is a much better position than Blinky is in above.

The gateway requirement applies to anyone who benefits under the plan. A zero allocation recipient is not an "employee" under the cross testing regulations and therefore is not subject to the gateway. Weird wording but that is the key.

p.s. By "allocation" I mean allocation of discretionary (non-employee and non-matching) dollars.

Edited by AndyH

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Trekker    1

Would it be different if there was not an HCE in the same group with the Non-HCE? Is that how a zero allocation passes the 401(a)(4) test...because there is an HCE in the group?

Thanks.

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Kimberly S    0

It all depends on how your allocation groups are structured. I've seen plans that have each HCE in a allocation separate group and NHCEs divided into 4 groups depending on whether or not they were employed on the last day of the plan year and whether they worked more or less than a specific number of hours. In that situation it was often possible to give a zero allocation to one or sometimes more entire NHCE groups and still pass.

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AndyH    23
Would it be different if there was not an HCE in the same group with the Non-HCE? Is that how a zero allocation passes the 401(a)(4) test...because there is an HCE in the group?

Thanks.

Spock??

No, I don't see that being relevant. Each rate group needs to pass coverage to pass a(4) - and the coverage percent need not be 100% to pass. 70% passes ratio/percent, e.g. 3 NHCEs with an EBAR above the HCE and one at 0% would work. Or using the Average Benefits Test, if available, might permit a lower threshhold.

Logical?

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