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Gateway and Individual Groups


Guest RMPension

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Guest RMPension

I am reviewing Corbel's newest DC Checklist and they have the option of assigning each participant into their own group. This seems to be the most flexible design for cross-tested plans. Are there any pittfalls to this option or should I go ahead and convert all my plans to this method?

Also, it is my understanding that if a "Group" does not recieve any Employer contributions, they do not need to receive a gateway allocaiton. ( If they receive a 3% Top Heavy or a 3% Safe Harbor , they must receive the 5% gateway. If they recieve 0.00 they can stay at 0.00) Does it follow, that if you do not need an individual for the test, they can recieve nothing for the year and the plan still passes Gateway?

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The short answer is yes. However, remember that you have a limited number of allocation rates in a prototype, and -0- is an allocation rate. ALso, remember that you do NOT have access to 401(a)(4)-11(g) amendments in a prototype.

I don't think new comparabilily and prototypes mix well unless you are choosing to not do the best job for your client (my opinion).

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Unless RMPension jumped and loaded the Corbel release over the weekend (it came out after 5PM Friday) the only checklist available was for the prototype. I don't know when the ASP checklists became available. SO, I jumped to the conclusion he/she was looking at the prototype.

If not, I apologize to RMPension, but my comments on the prototype still stand.

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Guest RMPension

Thanks for the comments and I am looking at the Volume Submitter checklist that came out last Friday. (My document guy works late:)

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In a Vol Sub plan, the answer is yes. That is, if an individual receives nothing then that individual does not need to receive the gateway. Bear in mind that the IRS takes the position that if you have ANYBODY in your plan that receives nothing who can, if you decided otherwise, receives something, then you have effectively named that person out of the plan for that year and your 410(b) tests must be done without being able to rely on the average benefits test. Usually, this isn't a problem. But if you are trying to exclude more than 30% of the NHCE's it could become one.

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The short answer is yes. However, remember that you have a limited number of allocation rates in a prototype, and -0- is an allocation rate. ALso, remember that you do NOT have access to 401(a)(4)-11(g) amendments in a prototype.

I don't think new comparabilily and prototypes mix well unless you are choosing to not do the best job for your client (my opinion).

I'm interested in the comment that in a prototype you do not have access to 401(a)(4)-11(g) amendments. Can you provide references that support this?

Thanks!

Laura

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I am interested too, because elsewhere I've heard a strategy is to use the prototype cross-tested, but if when testing for a year you need more NHCE groupings than allowed, do an -11g amendment. Until you might need to do so, you have the efficiencies of being prototype, and only once you need more NHCE groupings, through the -11g amendment, do you render the plan then to be 'individually designed'.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Because you cannot modify the language in a prototype document, the use of -11(g) instantly takes you out of prototype status and into an individually designed plan. You lose reliance on the prototype letter.

This is assuming the -11(g) amendment is amending the pre-approved lanaguge and not just making changes to an election allowed in the adoption agreement. For example, the retroactive amendment could be made to add more employees to the allocation by changing the excluded groups of employees or to increase benefits in the case of a fixed formula. Those types of amendments would not necessarily knock the plan out of reliance on the prototype letter.

Laura

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The one advantage that a prototype may have over a volume submitter is the ability for the prototype sponsor to amend the plan on behalf of the adopting employers due to law changes.

Under the EGTRRA documents the volume submitter sponsor can amend the plan on behalf of the adopting employers if the plan document includes such language, but not all volume submitters contain this language.

That is the only possible advantage I can see.

Laura

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Under the EGTRRA documents the volume submitter sponsor can amend the plan on behalf of the adopting employers if the plan document includes such language, but not all volume submitters contain this language.

I'm surprised not everyone added that language. Fair enough. If your document allows you to amend on your clients' behalf, then I'm suggesting vol sub for all of your EGTRRA restatements.

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Under the EGTRRA documents the volume submitter sponsor can amend the plan on behalf of the adopting employers if the plan document includes such language, but not all volume submitters contain this language.

I'm surprised not everyone added that language. Fair enough. If your document allows you to amend on your clients' behalf, then I'm suggesting vol sub for all of your EGTRRA restatements.

I'm surprised too. I was actually just quoting something I heard an IRS rep say on a webcast.

Laura

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IAlso, it is my understanding that if a "Group" does not recieve any Employer contributions, they do not need to receive a gateway allocaiton. ( If they receive a 3% Top Heavy or a 3% Safe Harbor , they must receive the 5% gateway. If they recieve 0.00 they can stay at 0.00) Does it follow, that if you do not need an individual for the test, they can recieve nothing for the year and the plan still passes Gateway?

You mean that you don't need them for the test because they generate low EBARs because of their superannuation? Be careful, if the sponsor elects to make zero for some classes of employees and chooses the zeroes to be the company's oldest employees...ya got trubble

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See, that is a major issue. If Jamaica Boy's comment is to be construed strictly, it doesn't matter whether the folks being taken to zero are HCE's or NHCE's. As I understand it, the issue isn't a4, it is ADEA and that law doesn't give a free pass to HCE discrim, like a4 does.

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For ADEA purposes, size matters. It's not like minimum coverage.

It would be more difficult for an older owner to complain than an older non-owner--after all, the older owner may have been involved in making the decision that discriminates in favor of younger employees.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Does this mean if the IRS reviews a case where

  • an HCE (age 60 to 65, owner or not) gets 1% of pay allocation, and
  • the other owner (age 50 - 55) gets 13.26% of pay allocation, and
  • the nonhighly group gets 5% each, and
  • it passes 401(a)(4)

that IRS could refer the above case to some other gov agency regarding an ADEA violation?

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I've never heard of the IRS referring a case for possible ADEA violation to the EEOC. More likely a disgruntled older employee refers to EEOC.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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I think its more potential trubble. The answer I gave above was strictly in response to "Does it follow, that if you do not need an individual for the test, they can recieve nothing for the year and the plan still passes Gateway?"

By definition HCEs don't need the gateway and you do need HCEs for the test. I agree with Mike, ADEA cares about age discrimination and protects HCEs and NHCEs alike.

If you have a plan as described above though, where you have a typical plan that, even tho everyone is in a separate category, gives a flat % of pay for staff or the greater of a flat dollar or flat % and you do the etest and you find that you have a group of nhces that are in nobody's rate group, so you change their contribution to zero.

You will find that you have excluded the oldest of your employees exclusively and in this case you have likely trubble.

If you actually give different contributions to different peeps such that the group you wind up excluding is not exclusively older you may only have potential trubble or no trubble

If you only exclude HCEs you can make an arguement that it wasnt based on age ... but my undertanding is that adea looks at actual impact rather than intention and if the older HCE brings suit you got potential trubble..but the irs likely has no problem

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