Excluded Class - New Minimum Allocation Gateway

[lkpittman]

Yuck!!!! We've got a potentially ugly situation. We have a cross-tested plan that also has an excluded class of employees. The excluded class includes NHCEs. Obviously, the plan has passed 401(a)(4) previously with these NHCEs not benefitting, but in 2002, I don't see any way to keep these previously excluded ees out! Any comments?

[Tom Poje]

That would be my understanding of the rules as well, unless that group was actually excluded from the plan itself (rather than just excluded from a contribution by class)

[lkpittman]

Yes, Tom. In fact, they do participate in salary deferrals, but are excluded from participation in the employer discretionary portion of the plan. We are not looking forward to explaining this to the employer!

[Medusa]

How the final regulations will turn out is anyone's guess, but the following from ASPA's comments to Treasury on the proposed regulations:

It should be clarified that gateway allocations in a year are necessary only for employees benefiting in that year. It should be clarified that for this purpose employees who would not benefit in the absence of special top-heavy rules are deemed not benefiting.

[AndyH]

Well, I almost always say "ditto" to Tom's comments. Now, I'm finding the same about Medusa's comments.

The ASPA comments were a valuable addition to this discussion.

[Medusa]

Actually Andy, I'd begun to think you were following me!

[Guest lforesz]

Hi,

More gateway questions. Company has two plans- one for associates- one for partners and staff. The plans pass coverage on their own. The associates get 3% profit sharing in their seperate plan. Staff get the minimum 5%- partners maximize. If the associates do not actually benefit under the staff and partner plan, I would assume they are fine at 3% (even the NHCEs) since they are not benefitting under the Plan being cross-tested. Is this a correct understanding.

Also, when I run the 401(a)(4) test, the associates show up in the rate group test with 3%. If they are not benefitting under the PLan (but benefit under the other plan) why must they be in the 401(a)(4) test. I understand that they would need to be included in the ABT- but why the (a)(4) test. Help! IT's hard to remember all these rules.

[Tom Poje]

Lori:

an interesting comment, that the associates are showing up in the rate group test.

That implies the following possibilities

1. the software is doing it wrong and doesn't offer other possibilities

2. Unintentionaly, the software is not being used properly

3. a combination of the two

you did not mention the name of the software, and obviously this is not a forum to get into a discussion on the merits of one software or another - I feel confident enough to think most have their pluses and minuses. I can make comments on the system I currently use, and then probably offend someone along the way, but that is not the intention. I hope the following comments are not taken as such.

with Relius, you would either have to code up two plans under the same employer. when performing the average benefits percentage test, you would include both plans in testing. when performing the rate group test, you would only include one plan, and then fill in the grid for non excludable/non benefiting employees. This would give you a correct rate group report.

However, at this point (Because you are only looking at one plan, and just threw a bunch of zeroes on the test), the plan might 'fail' the avg ben % test, so the 'overall' report would be in error since you actually passed that test. (It is interesting, on the old DOS system you had a toggle in which you could indicate plan passes average ben % test to get around this problem. Anyway, I note the above, just in case that is the software you are using.