plans subject to gateway

[Guest 401kproman]

A company has set up 2 plans. One (A) for its Partners and office staff. One (B) for its Associate Attorneys. The plans are the same except that the Associate plan gives everybody 3% while the main plan gives the Partners 12% and everybody else (including some HCEs) 4%. There are NHCEs in the Associate plan.

Both plans are part of the Testing Group under 410(B) due to permissable aggregation. Shouldn't both plans also be combined when utilizing the "gateway" rules so the Associate plan NHCs get 4%?

[Mike Preston]

If you are combining the associates plan with the non-associates plan to satisfy 410(B), then the associates plan would be subject to the gateway. However, in most cases it is not necessary to aggregate the associates plan with the non-associates plan. That is, the non-associates plan will satisfy 410(B) without being aggregated with the associates plan. If so, then the associates plan is tested separately under 401(a)(4).

[Guest 401kproman]

I guess my problem is that the Associates are nonexcludable employees under 1.410(B)-5 since they do not meet any IRS eligibility rule exceptions. Since 410(B) requires that all non-excludable, even if not benefiting under the plan, be used in testing and the "testing group" definition of 1.410(B)-5(d)(3)(i) appears to say that all plans that "could be permissively aggregated" are included in the testing, the Associates plan, not being a QSLOB, would have to be tested with the other plan for the other plan to pass 410(B) even though they Associate's plan might pass the 410(B) Ratio test on its own.

Since both 410(B) and 401(a)(4) state that the same plans (or two or more plans are treated as one plan) are tested under 410(B) are tested together in 401(a)(4), than wouldn't both be subject to gateway.

[Mike Preston]

I think you are confusing the testing required for purposes of the Average Benefit Test with regular 410(B) testing. The gateway rules apply to regular 410(B) testing.

[Guest 401kproman]

I must be confused.

The main plan with its non-IRS safe-harbor 4%/12% contribution needs to pass discrimination testing through cross-testing. Part of that testing is, if the Rate Groups don't pass the Ratio Test, to have the plan pass the 410(B) Average Benefits Test as well as the passing of the Nondiscriminatory Classification test by the Rate Groups.

Is there a difference in the determination of the Average Benefits Test for "regular vs. "Cross-testing? If so, what am I missing?

[Mike Preston]

I think somebody else needs to jump in here and try to explain it. Obviously, I'm not doing a good job for you. I'll try a bit more, but it is kind of a busy day, so I may not be able to spend as long as I might otherwise.

You need to establish how the plans are being tested under 410(B). If they are aggregated under 410(B), they are aggregated for 401(a)(4) and the gateway requirements. If they can stand on their own, then they are tested separately under 401(a)(4) and the gateway requirements.

Just because you use the Average Benefits Test (which requires all plans of the employer be tested together), it does not therefore follow that you are aggregating all plans of the employer for 410(B) testing.

I know it gets confusing, but that is the way it works.

[Tom Poje]

or for example:

Plan A has 3 NHCEs and 1 HCE and plan b has 3 NHCEs

plans are not aggregated

so fails ratio % since

NHCE % = 3/6 = 50%

But you test avg ben test (treating the 3 NHCEs from B as big fat zeroes, and plan passes.

Since plan passes 410(B) without aggregation, you do not have to provide minimum gateway to the folks in B

[Guest 401kproman]

The problem I have is that both plan A and B actually pass the Ratio Test of 410(B).

Plan A must use cross-testing because their formula is not a safe-harbor. If plan A is tested alone, it fails Avg Benefits because no NHCs have adjusted rates greater than or equal to the highest HC. If I combine A & B, then there are NHCs with higher rates.

Don't I than need to give the NHCs in B the gateway amount?

[AndyH]

Ok, this looks like a team effort; now I'll chip in.

You said that both pass R/P. Great. But then you say that plan a must be cross tested since it's not a safe harbor. Wrong. It must be general tested, not necessarily cross tested. It could pass on a contributions basis.

Assume it does not pass on a contributions basis. Then, yes, try cross testing. But in doing the cross test, you have the option of testing only plan A, or testing both plan A and B together (aggregating). You can try it either way. If you include only A, then you need not provide the gateway to B. But if you include both, both must get the gateway.

And either way you try testing it, if each rate group doesn't have an R/P of at least 70%, then you must also satisfy the Average Benefits Percentage Test, which requires that the average EBAR (including deferrals and match for the ABPT only) or allocation percentage for the NHCEs at least equals 70% of the HCE Average.

Nothing requires, for purposes of the Average Benefits Percentage Test, that the percentages for NHCEs to exceed HCE percentages, just that the average is at least 70%.

See if that helps.

[Mike Preston]

You need to hire somebody to review the non-discrimination tests in total to let you know what you need to do.