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Minimum gateway calculation example


cohendrake

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Some gateway issues that I would appreciate feedback (and hopefully confirmation) on.

Easiest to put it in example form:

Two participants for 2016 in 401(k) plan with safe-harbor and new comparability profit sharing allocation.
HCE - age 60 - $265,000 salary, $24,000 401(k)
NHCE - age 30 - $50,000 salary, $5,000 401(k)

A) If the safe-harbor were the match and the HCE got $10,600 as SH and $24,400 PS to get to $59,000 maximum would the NHCE need to get $2,000 SH and $1,535 PS based on the gateway being 1/3 of 9.208% ($24,400/$265,000)?

B) If the safe-harbor were the non-discretionary 3% and the HCE got $7,950 as SH and $27,050 as PS to get to the $59,000 maximum would the NHCE need to get $1,500 SH and $701 PS based on the gateway being 1/3 of 13.208% ($35,000/$265,000) and the non-discretionary 3% SH considered as part of that minimum gateway for the NHCE?

C) If the NHCE above terminated employment during 2016 with over 500 hours would their PS allocation change under A or B above?

D) What if the NHCE terminated employment during 2016 with under 500 hours?
 

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the gateway minimum is made up of non-elective contributions - profit sharing, forfeitures, 3% safe harbor NONELECTIVE contributions (and if combined with a DB plan, the DB allocation).

Matching contributions (safe harbor or otherwise are NOT considered to be nonelective contributions. (In fact, if it helps, when running coverage testing you have 3 tests

1. deferral

2 match and after tax

3. nonelective contributions. (and these are the only ones that can be used toward the gateway)

though I should add, the current proposed regs would allow matching contributions to be applied to the gateway in certain situations in combo db/dc plans.

There can not be an hours requirement/last day requirement to receive a safe harbor. If the plan has a safe harbor match, as mentioned above, it does not count toward the gateway because it is not a nonelective contribution. the only people needing to receive the gateway are people who received a gateway, so in you example, no gateway required for the individual. if the plan was a 3% SHNEC then the gateway would be required.

However, if the safe harbor was a match, and the there was a non-elective to the owner you have to pass coverage. and if any NHCES had over 500 hours, they would be treated as included and not benefitting so you might have to give them a nonelective anyway. 

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  • 1 year later...

Assuming the DB/DC combo plan has no any type of safe harbor contribution and the only contributions are employee deferrals and group based profit sharing.

How do you handle the DB/DC combo plan gateway when the DC plan has 1,000 hours requirement if terminated before the end of the plan year?

It appears the client volume submitter plan doc. doesn't have any gateway language.

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I'm assuming you mean the person receives a DB benefit because he has 1000 hours. If the person quits he still must receive the gateway because the DB benefit is a nonelective contribution. if the document has no gateway language after all these years then the folks should be beaten with wet noodles at sunrise or something like that.

most db/dc combo plans are top heavy (at least those I have seen) so you may have another issue. you have a DB/DC combo so the top heavy is either in the DB (2% accrual) or the DC (5% allocation) but now the person has quit and so isn't normally eligible for the top heavy in the DC plan. so how do you handle such a person?  I think most plans are coded the minimum is provided in the DC plan (again how do you handle a terminee in a case like that),  but sometimes the sloppiness rule applies and when the plans were set up no one thought about it and the plans aren't specific!

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