Integration in Xtested Plan?

[jkharvey]

401(k) SH Plan wants to be able to make different contributions to each of its two divisions. The allocation formula for each division will be the same. It will be a regular integrated formula. Basically what they want to do is give Division A the 3% SH minimum only. If they decide to give A a contribution one year, it will also be allocated under the same integrated formula. Division B will receive an additional PS contribution that will be allocated using an integrated formula. There are HCEs and NHCEs in each division.

I know that they will have to pass the general test. I think that they can avoid the 5% gateway minimum for Xtested because of broadly available accrual rates. Am I correct with all of this? Something doesn't "feel" right about it. It doesn't look like any of our Corbel Adoption Agreements will work and if we did this it would have to be IDP?

[AndyH]

Two questions: (1) Does each group pass 410(b) separately; (2) Does the integrated formula ignore the 3% SHNEC or are you using it toward the maximum integration amount?

If the answer to both questions is yes, then you can restructure the plan into two groups and each is a safe harbor. Then you pass 401(a)(4).

If the answer to one or both is no, then you should try testing the plan on a contributions basis, which avoids the 3/1 or 5% gateway.

No, you do not meet a gateway exception as you speculated. You need to satisfy amounts requirements as well as availability requirements.

[jkharvey]

Thanks for your help. In answering your questions, I need to clarify one point. When you ask if each group passes 410b, you mean where the benefiting HCE or NHCEs of EACH group only are counted in the numerator but ALL HCEs or NHCEs (plan in total) are counted in denominator?

If that's the case, then one group does not pass 410(b).

[AndyH]

Then you probably have a few choices:

1. If you only tried the ratio percentage test for coverage, then try the average benefits percentage test.

2. General test on a contributions basis.

3. Provide the gateway and test on a benefits basis or a combination of contributions and benefits.

4. Redesign the program so that it passes one of these tests.