Guest merlin Posted January 10, 2003 Posted January 10, 2003 With a plan that uses a 414(s) definition of comp for allocation purposes can I always base the gateway on the 1/3 rule, even if it results in an allocation of less than 5% of 415 comp? Here's an example: Calendar year top heavy plan. Plan comp = total as a participant, excluding bonus. NHCE entered plan 7/1/02. He made $20000 from 1/1-6/30; 25000 from 7/1 to 12/31; got a 10000 bonus at 12/31. The highest HCE allocation rate is 20%. Is NHCE's gateway allocation 6.67%x25000=1668,or 5%x35000=1750?
Belgarath Posted January 10, 2003 Posted January 10, 2003 My understanding is that you simply must pass EITHER the 1/3 or the 5% test. So if your compensation definition for the 1/3 test satisfies 414(s), then you should be fine.
Tom Poje Posted January 10, 2003 Posted January 10, 2003 love your numbers! ee has to get 1/3 rate, but plan is deemed to pass if ee gets 5% of 415 comp. You actually threw a third requirement in that you have to check - top heavy. so you have 1/3 using plans def of comp: 1668 was that at least 5% of 415 comp? yes top heavy check 3% (55,000) = 1650 so he also received at least the top heavy. it was close! now, your opening statement says plan uses 414(s) definition for allocation purposes, but then turn around and exclude bonuses - and in this case pretty sizable. the 414(s) test on the individual is 25,000 / 35000 = 71.4% not a good start if your hces aren't losing much in allocation comp due to bonuses.
Guest merlin Posted January 10, 2003 Posted January 10, 2003 Tom, I tried to simplify the question,so I made up #s that would demonstrate the point. But thanks for reminding everyone that (1)we always have the t/h minimum lurking in the background, and (2) comp exclusions have to pass their own test before they can be used. Anyway, the answer is that I could give this guy 1668, rather than 1750,right?
Tom Poje Posted January 10, 2003 Posted January 10, 2003 that would be my understanding. the regs read gateway is satisfied if each NHCE has an allocation rate at least 1/3 the rate of the highest HCE; "however, a plan would be deemed to satisfy this gateway if each NHCE receives at least 5% of the NHCEs 415 comp" by the way, thanks for the other notes. Merlin: its Friday, its late. can you make me disappear
Guest merlin Posted January 10, 2003 Posted January 10, 2003 Tom, after all the help you've given me and others over the years I was happy to be able to return the favor even in that small way. As for your other request, consider the magic wand waved. You're outta there!!!
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