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Individual Rate Groups & Gateway


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I searched archives and couldn't find an answer, would have thought this group would have discussed at some point - maybe I didn't look long enough.

Combination CBP (1,000 hours for allocation) and PS 401k with SH match and individual groups with no allocation conditions for PS.

Two NHCEs terminated with less than 1,000 hours, so no CB allocation and no top-heavy (if applicable, but not TH yet anyway). The CB providers doing the testing think that the employer can declare zero PS for these two NHCEs and therefore, they are not benefiting under the (combined) plan with respect to 401(a) source and need not be provided the gateway allocation of 5%. Employer was given option to give these two 0% or 5%. 

The DC providers think that these two NHCEs are required to get the gateway because there are no allocation conditions. 

I am in the CB camp (no gateway). Regulations say gateway is required for employees benefiting under the "plan" and refers to 1.410(b)-3 for "benefiting" which says:

§ 1.410(b)-3 Employees and former employees who benefit under a plan.
(a) Employees benefiting under a plan -
(1) In general. Except as provided in paragraph (a)(2) of this section, an employee is treated as benefiting under a plan for a plan year if and only if for that plan year, in the case of a defined contribution plan, the employee receives an allocation taken into account under § 1.401(a)(4)-2(c)(2)(ii), or in the case of a defined benefit plan, the employee has an increase in a benefit accrued or treated as an accrued benefit under section 411(d)(6).

These two terminated NHCEs are not receiving an allocation. It is clear we cannot exclude them from coverage and nondiscrimination testing, even if hours are less than 500, because that is not the reason they do not benefit, the reason is that the employer (under the terms of the plan) decided that these individual allocation groups will not be given a profit sharing contribution. As long as coverage and nondiscrimination pass with these people included as zeroes (in the denominators only) I think we're good - and it isn't an issue as this is a fairly large plan.

Who is correct CB or DC providers and why, if anything different or additional from above regulation?


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Another vote for your interpretation. If you want additional support, this is in the preamble to the 2001 new comp regs:


 For example, the term employee, as used in these regulations, is defined in Sec. 1.401(a)(4)-12 as an employee (within the meaning of Sec. 1.410(b)-9) who benefits as an employee under the plan for the plan year, and an NHCE is defined in Sec. 1.401(a)(4)-12 as an employee who is not an HCE. Thus, an individual who does not otherwise benefit under the plan for the plan year is not an employee under these regulations, hence not an NHCE, and need not be given the minimum required allocation under the gateway. 


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Thanks Everyone.

Yeah, the "dark siders" usually defer to my expertise in shedding light for them, but apparently not this time!

Enjoy the weekend - stay safe and stay warm, especially if caught in the polar vortex.

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