Minimum allocation gateway w/ 3% SHNEC

[Guest jpetrancosta]

If we have a plan that has a 401(k) feature with a 3% safe harbor contribution, can we use that contribution to satisfy the minimum allocation gateway under either of the following examples:

1. Employer contributes the 3% safe harbor contribution and an additional 1% discretionary contribution to the NHCEs. Can the HCEs receive a 12% (4% X 3) contribution assuming the equivalent benefit accrual rate test is met.

2. Employer contributes the 3% safe harbor contribution and an additional 2% discretionary contribution to the NHCEs. Can the HCEs receive the maximum contribution which allows them to satisfy the equivalent benefit accrual rate test?

Does the vesting requirements of the additional discretionary contribution affect the answer?

Thank you.

[Tom Poje]

1. yes. NHCEs receive 4%, hces can receive 12% for the gateway. you can now proceed to the nondiscrim test.

note: you might not want to impute disparity.

you have the following:

NHCE 3% SHNEC plus (1%discretionary which you can impute disparity on)

vs

HCE 3% SHNEC plus (9% discretionary which you can imput disparity)

a 43 year old at 1% = EBAR of .625 in 2001. maximum disparity is lesser of .65 or 2*.625.

so as a rough guideline, NHCEs less than age 43 are helped by imputing disparity under this scenario.

2. same as above, NHCEs at 5%, therefore HCEs can max out at wahtever will pass testing. you can now imput on 2% for the NHCEs, so that helps even more. I estimate the NHCE can be age 51 or younger, so imputing should help most of the NHCEs.

vesting would not make a difference, unless you actually declared a 5% safe harbor, in which case you could not impute on 5%.

[Guest jpetrancosta]

Thank you. I'm not sure how imputing disparity under a cross tested plan works. Is it related to the social security integration rules.

[Tom Poje]

yes it is related.

net effect might be something like this:

E BAr EBAR w disparity

NHCE 2.00 2.65

HCE 2.20 2.57

in other words, plan might not pass without disparity, but it would pass with disparity.