gateway and multiple formula situation

[AndyH]

Somebody is asking me the following question about a problem takeover plan that is being redesigned.

Plan provides that participants get the greater of two formulas, one that is a target benefit formula that by itself would be exempt from the gateway, and a formula based on age that meets the smoothly increasing, broadly available exemption. All participants get the greater of the two.

Question: Is this plan subject to the 3/1 or 5% gateway?

I say yes, because even though each component would be exempt, the combined plan would not be a safe harbor so the mutliple formula exemption for safe harbor plans would not apply, and the gateway regulations seen to preclude restructing into component plans to aboid the gateway requirement.

This of course assumes that the plan could not pass the general test on a contributions basis.

Opinions?

[Mike Preston]

I agree,with a small caveat. It is possible that the combination of the two still results in an allocation design that is consistent with the smoothly increasing exception. But you probably have already checked that and found that it doesn't.