Minimum Gateway for excluded employees with top heavy only

[Guest lforesz]

I want to make sure I completely understand the ASPA webcast Q&As.

If a plan excludes associate attorneys from the profit sharing portion of the plan but allows them to participate in the 401(k) and the plan is top heavy, associates will receive a 3% top heavy minimum. However, since they are not benefitting under the PS portion of the Plan, I would think they do not need to be bumped up to 5%. I hope that the IRS considers the top heavy contribution only to be a seperate portion of the plan subject to 410(B) on it's own and that the associates are not in the 401(a)(4) test.

Any thoughts?

[Tom Poje]

"Any thoughts?"

yeh, but you probably won't like them.

The 'explanation of provisions' (I am looking at the Federal Register/vol 66,no 126/friday june 29,2001

this was sort of the preamble to the regs 1.401(a)(4)

"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 under the gateway."

now, on the Schedule T, an employee is treated as benefiting even if he only receives the top heavy minimum. so, the conclusion appears to be since the ee is benefitting,- even if only top heavy, his amount must be increased.

The only way is splitting the plan into two pieces under the otherwise excludable rule, but that doesn't sound like it would help in your example. And, without looking it up in detail, the ERISA Outline Book says you can't use the otherwise excludable rule if you have a 2 year eligiblility.

[Guest Boilerburm]

To follow on this line, what if the plan were not top heavy? The associates are excluded from the profit sharing allocation under the terms of the document, but are eligible for 401(k). Would they be required to get a 5% allocation to pass gateway?

[Guest lforesz]

No, if the plan were not top heavy, they would not be required to get the 5%. The gateway contributions only apply to participants who benefit for the year.

The rub is that employees who receive top heavy benefits only are assumed to "benefit", so they must be bumped up from 3% to 5%.

If employees are not eligible for a benefit (i.e. an excluded classs) or are otherwise eligible but do not benefit (i.e. terminate before EOY or work less than 1000 hours) then they are not required to be part of the gateway (unless of course- the Plan is top heavy).

Hope this helps!

[Guest merlin]

This question was asked at the IRS Northeast Area Employee Benefits Conference last week.The answer is that as long as nec portion of the plan passes the ratio % test, the "less than 21/1ers" and the excluded class members do not get the gateway. The explanation I got afterward from Ken Aufsesser (who answered the question,with Dick Wickersham nodding his assent) was that for purposes of the r%t each plan's eligibility requirements are applied separately,1.410(B)-6(B)(2)The

But if you need the average benefit test to pass coverage the average benefit % test requires that all plans in the goup be treated as a single plan,using the lowest eligibility conditions.So anyone getting the t/h minimum would have to be bumped up to the gateway.

Judging this answer against the previous posts, I assume you're all as surprised as I was.

[Guest merlin]

Sorry - the cite s/b 1.410(B)-6(a)(2).