Hello,
Typically cross testing is beneficial and needed for our client’s plans, however, I’m looking at a prospective client whose situation is unique (for us) so I wanted to double check my understanding with the Experts. The company has very young owners (2 of 3 in their early 20’s) with an older employee population. Assume this is a 401k plan with:
A discretionary PS contribution that uses an Integrated allocation formula and
A Safe Harbor Non-elective contribution of 3% (allowing owners to maximize deferrals and avoid ADP/ACP).
The discretionary PS contribution has a last day of employment and 1,000 hours requirement. The SH Non-elective obviously does not impose those same requirements. As a result, testing reports reflect a failed minimum gateway (because some employees only receive the 3% non-elective which is not at least 1/3 of what the HCE’s are receiving after PS). However, 401(a )(4) passes because we are using an integrated formula which meets the broadly available allocation rates exception. Am I correct in my understanding that, because we are not cross‑testing, the gateway requirement does not apply, and therefore the “failed gateway” testing report can be disregarded? (We use DATAIR and I’m not accustomed to accepting a failed gateway so I wanted to be sure my interpretation is correct)
This is my first time posting on this forum, but I’ve been in this space for several years. The insights and resource references shared here have been extremely helpful—thank you all for your willingness to share your knowledge and experience.
