gateway contributions and double counting the 3%

[Guest lworthington]

example

employee a is an hce with comp of 200,000

employee b is an nhce with comp of 40,000

ee comp def sh3% psp pct

A 200,000 11,000 6000 23,000 11.5

b 40,000 0 1200 336

can i use the 3 pct sh in use of the gateway, and make this pass or do i have to give an additional contribution of 3pct because the hce received the 3pct sh

does not pass the smell test to me.

i have read a lot of your message responses and feel that you have a VERY clear understanding of the gateway contribution requirements.

please help

thanks so much!

lerae

[Tom Poje]

your question can be summed up in an example from ASPA. The safe harbor can count toward the 5%. However, the HCE received 29,000 in nonelective contributuions which is 14.5% of pay. therefore the minimum is the lesser of 5% or 4.83%.

from the ASPA Webcast Q & A

q. There was a question earlier concerning giving a participant an extra 2% in a safe harbor plan...the participant would receive the 3% safe harbor contribution, but why would they necessarily have to receive the 2% if the plan required last day employment for the profit sharing?

a. If an employee is benefitting, they are entitled to the 5% gateway allocation.

.........

and a reminder. this is only the gateway. you still must pass nondiscrimination testing.

[Blinky the 3-eyed Fish]

An additional note on the ASPA answer, "otherwise excludable" employees that are disaggregated for testing will not need to receive the minimum gateway if that component plan is not cross-tested.

This is an example of when a participant can benefit but not need to receive the minimum gateway allocation.

[Guest Judy S]

It seems to me in your example that the minimum gateway percentage should be measured with the profit sharing allocation only rather than both the ps and the match. The HCE received 23,000 in profit sharing, which is 11.5% of pay, making the minimum gateway 3.83% rather than 4.83%. See Example 7 from the ASPA webcast.

[Blinky the 3-eyed Fish]

Judy, in the example posed Employee A receives 6,000 as a safe harbor nonelective contribution and 23,000 as an additional nonelective contribution. There is no match in the example.

[Tom Poje]

although, actually Judy is on to something. since the NHCE is not deferring, they could go with the 4% match.

Then the HCE only needs 21,000 in profit sharing. which is 10.5% of pay. 1/3 of that is only 3.5%

if the plan can pass cross testing then the owner gets but real cheap.

Of course, that only works if the ee doesn't defer, and since you have to anounce beforehand, the guy might start deferring.