What contributions do you include for Cross-tested Gateway?

[John A]

If a plan sponsor has 2 defined contribution plans, what contributions are included towards the cross-tested (5% or 1/3) gateway?

If there is a cross-tested 401(k) plan with a profit sharing feature, and a money purchase plan, do money purchase plan contributions count toward the gateway? Does this depend on whether or not the plans are aggregated for 410(B) purposes? What if the money purchase plan is the cross-tested plan?

Am I correct that QNECs and safe harbor 401(k) nonelective (usually 3%) contributions generally count toward the gateway?

What about top-heavy minimum contributions?

[Mike Preston]

I haven't looked it up today, but I'd be surprised if you did the 401(a)(4) testing before the 410(B) testing. Hence, if you choose to aggregate your MP and your PS for 410(B), then you aggregate the employer contributions from both in order to determine whether you have passed the gateway test.

I don't think that QNEC's count towards the gateway; unless you can demonstrate that they aren't used as "real" QNEC's. That is, if they aren't used to help pass the ADP test, I supposed one could argue that they are to be taken into account as employer contributions.

The only contributions that serve double duty are safe-harbor contributions. They are used in the cross-testing analysis even though they are used, in a sense, to satisfy the 401(k) tests. And they serve as top-heavy minimums, also.

[AndyH]

I find the 410(B) aspect of this interesting. Mike, extending what you are saying, which does look right to me, it would seem that if you had a group of people who you didn't want to give the gateway to, and they were 30% or less of the nonexcludable group, then you could exclude them by class and give them their own plan, with a lower contribution rate, therefore bypassing the gateway, a slam dunk if none are HCEs?

Is this right?

[Mike Preston]

Sounds right to me.

This is the same logic that has been used for many years in the exclusion of "middle-tier" employees from top-heavy minimums. Hence, you will frequently find an "associates" plan that is tested separately for 410(B) purposes.