LarryDavid

Thanks Tom. In my case, I actually do have a small number of HCE's in the disaggregated group (since I am using semiannual eligibility and a few late 2009 hires actually made over $110K in 2009); therefore I will have to test that group on a benefits basis as well. Thankfully the highest allocation rate for the HCE's in this group is very small, and each NHCE in this group is above 1/3 of the highest amount. So it looks like I'm good and can at least save my client a little cash for this group. Thanks again.

My gateway is for a DB/DC combo. The highest HCE allocation rate (from DB plan, based on 414(s) comp) is 26%. Therefore all NHCE's must receive either (1) 6% of 415 comp (which can be from DOP where applicable), or (2) 8.667% (1/3 of 26%) of 414(s) comp. Is this correct? I assume option 1 will provide a lower amount for all, but if it doesn't am I allowed to mix and match, i.e. give each NHCE whichever amount is lower (some may be option 1 and others may be option 2)?

Another Gateway question(s): I have two separate definitions of Plan Compensation (i.e. compensation on which the plan allocation is based) in my Controlled Group: Plan #1 -- Total pay earned for period of the year in which employee was a participant in the plan (1-year eligibility period) Plan #2 -- Base pay earned for the entire year (immediate eligibility) For Testing puposes, I am currently using total pay for the entire year for all participants in the aggregated plan. The plan is failing the minimum allocation gateway test, so as of now I am calculating the required gateway contribution based on total pay for the entire plan year. My questions are: 1.) Can I base the gateway for Plan #1 on Earned-While-Eligible pay? I assume if I do, then I would also have to use this defintion of compensation in my General Test. Sinc this will only improve results for that test (as it will result in higher accrual rates for a group of all NHCE's), that will not be a problem. 2.) Can I base the gateway for Plan #2 on Base Pay? I'm guessing this is a No, unless I can somehow use Base Pay as my Testing Compensation. Which leads to my third question.... 3.) Can I use Base Pay as my Testing Compensation if this definition of pay is deemed non-discriminatory using the compensation percentage test? 4.) If #4 is Yes, does that mean I have to use Base Pay as the Testing Compensation for the entire Aggregated Plan (including Plan #1)?

I am allowed to run separate gateway test for Otherwise Excludable Employees? I know for Component plans the answer is No. But I'm hoping I can exclude a large number of 2010 hires from having to receive a gateway allocation for a plan that is failing (even though some of these employees did receive an allocation in 2010 as part of a plan with immediate eligibility).

Thanks Tom. The DB plan has a grandfathered DB benefit with a traditional FAP formula. That is why the average allocation is relatively hight at 5.66%. The ultimate benefit is the greater of FAP and CB for the grandfathered people, so for the most part the CB doesn't even come into play (since the FAP almost always wins). For the non-grandfathered group, they've had their DB plan benefit frozen and they now receive a 5% PS contribution (so they all need to receive an additional .66% allocation; or in most cases more since PS is on base pay only). Thanks for your help with all this. I think I have enough to give the client an accurate estimate of what the necessary gateway contribution will be. Next step will be to play around with all the different acceptible forms of comp that I can test on, to see if I can improve the results at all.

Thanks Tom. Follow-up questions/comments: So 6% is the required allocation rate for all NHCE's that benefit under the plan (since highest HCE is 26%). The average NHCE allocation rate in the DB plan is 5.66%, therefore each NHCE theoretically has to receive an additional .34% allocation to satisfy the gateway. My questions are as follows: 1.) Several NHCE's have higher allocation rates than 6%, therefore do they still have to receive an additional allocation to meet the gateway? I assume yes since I'm using the "average NHCE" approach (because several NHCE's have small allocation rates in the 1-2% range). So basically, by using the average NHCE approach to help reduce the required allocation for the lower NHCE's, I in turn create required contributions for the higher NHCE's that would otherwise not be needed. Is that correct? 2.) In my testing group, none of the DB participants receive allocations in a DC plan. The only reason we are aggregating the plans is that the DB plan does not satisfy nondiscrimination on its own. Therefore, when providing allocations to satisfy the gateway, how should this be done for the DB-only people? I see that QNEC's are not allowed. Does the plan sponsor need to create a DC account for these people? 3.) As mentioned above, I see that QNEC cannot be made simply to satisfy the gateway test. What exactly is the difference then, between a QNEC and an separate nonelective contribution made solely for purposes of satisfying the gateway? Is the only difference that a QNEC makes its way into the General Test, but a gateway contribution does not? Sorry for all the questions. This stuff gets more confusing the more look into it!

I have a DB/DC plan this is failing the minimum gateway test for 2010. The level of failure appears to be much worse when testing on an Annual basis (highest allocation rate = 25%) vs. Accrued to Date (highest HCE allocation rate = 13%). However, once I start analyzing the amount of contribution the plan has to make to correct the gateway, I think the contribution required is much higher under ATD due to having to multiply the contribution by total service. For example, in my test all NHCE's must have an allocation rate equal to at least 4.33% (1/3 of 13%). So if I have an NHCE with a current allocation rate of 4.00% (and let's say he has 10 years of service) does that mean the required contribution to satisfy the gateway is 0.33% x comp x SERVICE? So if comp was equal to $100K, instead of just having to put in $333 (0.33% x $100K), I'd have to put in $3,333, since the $333 would not be enough to get the overall allocation rate up to 4.33% once it is added to the total account balance and then divided by 10 years of service. Am I getting all this correct? If so, should I just stick with the Annual method? The minimum for NHCE's would jump from 4.33% to 5.00%, but if my assumption with service is correct, it would be a much cheaper overall contribution to the plan. And as a side question, if the highest HCE allocation rate is 26%, does the minimum required allocation for NHCE's jump from 5% to 6%, or is it just 26%/5 = 5.2%? Much thanks in advance for anyone that can help.

Good point. That actually raises another question: When doing the coverage test for the different vesting schedules, do I look only at the specific service groups that have lower vested %'s? In other words, if I were comparing Group 1 and Group 2 as is (Immediate for Group 1 and 4-year cliff for Group 2), would I only compare the coverage ratios for employees with less than 4 years of service (since all others get the same vested % of 100%?) This would presumably help my test, since there may not be as many HCE's benefitting in Group 1 if I'm only looking at those ee's with less than 4 years of service.

Are different vesting schedules required to be tested as a benefits, rights and feature? I assume yes, unless the different schedules each meet the safe harbor requirements. I have 3 plans within a controlled group: 1.) Immediate Vesting - mainly HCE's 2.) Graded, 1-4 years (25% per year) - mainly NHCE's 3.) Graded, 2-6 years (20% per year) - mainly NHCE's I'm guessing the above setup doesn't look too good regarding nondiscrimination testing? If Group 1 switched to a 3-year cliff, then they'd be all set, correct? (Since Group 1 and 3 would then have safe harbor schedules, and Group 2 is better than safe harbor but mostly NHCE).

I guess the whole "at least on these Boards" comment is one of my issues. There doesn't seem to be clear guidance in the regs on whether we can use ATD accruals for a frozen plan if there was no actual accrual in the current year. The fresh start rules seem to say that you can do this, or at least I thought they did. Some of the older HCE's in the DB plan generate a pretty high allocation rate under the FAP plan (certainly higher than 5%), so I don't think that would have any chance of passing 401(a)(4).

Thanks. I had greatly oversimplified my example to try and answer my main question on different ways to satisfy the "primarily DB in character" gateway. A more detailed breakout of the CG plans is as follows: Group A has 3000 ee's (50% HCE; to answer your above question yes this is correct). EE's hired before 2001 are in DB plan which is greater of 1.6% FAP and 5% CB design (FAP wins out for most). This particular group is about 2/3rd's HCE, and only represents about 500 ee's. The remaining 2500 ee's have no DB benefit but receive a 5% PS contribution. Group B has 10,000 ee's (90% HCE). All were in a 5% CB plan up until 12/31/2009, when it was frozen. They now all receive a 3% PS contribution. Is there anyway the small portion of ee's in Group A can continue to accrue benefits in the DB plan? I'm struggling to figure out a way to get the aggregated "plan" to be considered DB in character. Is the only way to satisfy the gateway to give all ee's in Group B a 5% PS instead of 3%? (assuming nobody in the Group A DB plan has an allocation rate above 25%)

I am testing a Controlled Group that consists of two employers: one contains about 50% HCE's and 50% NHCE's and provides a FAP formula under a DB plan of 1.6% of pay. The other group is mostly NHCE (about 90%) and just recently froze their DB plan and replaced with a 3% profit sharing contribution. The group that is 90% NHCE has about 10,000 employees, while the group with the DB plan has roughly 3,000 employees. Is there any way for a structure like this to satisfy the DB/DC gateway? Several of the older HCE's in the DB plan have allocation rates greater than 9%, meaning the 1/3 rule won't work. And the primarily DB in character won't work either since the majority of the NHCE's in the CG only receive a PS contribution. Can I use Accrued-to-Date Testing to satisfy the Gateway (i.e. use the frozen DB benefit for the 10,000 ee group that is mostly NHCE's to generate an equivalent allocation rate)? Any help anyone can think of?

Thanks Bill. That was very helpful.

Question on testing a frozen cash balance plan: If a Cash Balance plan is frozen for contribution credits, but still provides interest credits, are participants considered to be "benefitting"? I would think the logical answer is no, however if the plan were NOT frozen, I know the accrual rate is based on BOTH contribution and interest credits earned during the year. So there seems to be a contradiction in that interest credits are only counted towards accrual rates if there is also a contribution credit provided during the year. Is this correct?

Thanks Tom. So if I were to use option 1 (Plan Entry Dates), in this case the "Plan" is an aggregated plan comprised of individual plans with multiple eligibilities, the most lenient of which happens to be immediate (and therefore is the applicable eligibility for the aggregated plan), I can use immediate entry in my 21/1 exclusion and only exclude ee's hired on or after 1/1/2009?

My software is simply my own excel spreadsheet that I've set up, so I guess the choice is up to me. But it sounds like I should still use the 7/1/2008 entry date, and if any HCE's fall into that group I should then not include them with the disaggregated group? For some reason I thought methodology was okay for ADP/ACP testing but not 410(b) and 401(a)(4)?

Quick question on using the Otherwise Excludable Employees option in my coverage/nondiscrimination testing: I'm testing an aggregated plan with immediate eligiblity, and I want to carve out those employees not satisfying the statutory 21/1 eligibility requirements. My understanding is that, when applying the 21/1 eligibility, you also have to apply semiannual entry dates. So if I'm performing a 12/31/09 test, my disaggregated group would include anyone hired after 7/1/2008. In this case, that group unfortunately includes a couple of HCE's that were hired in the 2nd half of 2008 and still made over $105,000. So my question is: Can I use a different entry date when applying the 21/1 eligibility? Specifically, can I use immediate entry after attaining 21/1 and therefore only include ee's hired after 12/31/2008 in my disaggregated group (and therefore guarantee they'll all be NHCE's when testing the 2009 plan year)?