Gateway allocation

[k man]

the gateway regulations say that the Plan Administrator must allocate the gateway contribution without regard to allocation conditions. i am wondering when the contribution is actually classified as a gateway contribution. lets say for example the employer decides it wants to give HCE's 15% and NHCE's 5%. this of course satisfies the gateway regulations but if it satisifes 401(a)(4) on its own would any of the contribution to the NHCE's have to be allocated in accordance with the gateway regulations?

[AndyH]

Your first sentence is incorrect. Any NHCE who "benefits under the plan" must receive the gateway. If you would rephrase your question with this correction I'll try to answer, but I don't understand the question.

[Blinky the 3-eyed Fish]

What do you mean that, "if it satisifes 401(a)(4) on its own.."? If the plan uses cross-testing to satisfy 401(a)(4), you MUST satisfy the gateway requirements, unless of course your allocations are broadly available, blah, blah.

Now the gateway must be given to those that benefit from the nonelective portion of the plan. This could be from a PS contribution, QNEC, safe harbor nonelective or TH minimum contribution. So, if, for example, your plan has a last day requirement for a PS contribution, and that is the only nonelective contribution received during the year, and a participant terminates before the last day, he does not benefit and is not entitled to a gateway minimum. So, your statement that "...must allocate the gateway contribution without regard to allocation conditions." is not entirely correct.

[k man]

the statement i made regarding 401(a)(4) was inaccruate. i realize the plan must pass 401(a)(4) and the gateway. however, the first sentence is not incorrect as someone stated. i believe i have resolved the question. the plan must satisfy the gateway regs or have broadly available allocation rates. thus, if each rate group does satisfy 410(b) you are probobly using the minimum allocation gateway. if this is the case the contribution must be allocated without regard to the allocation conditions in the plan.

blinky, can you clarrify when you would suspend allocation conditions? it seems as though you have to give a gateway allocation to anyone receiving any other nonelective contribution (ie. top heavy) regardless of allocation conditions in the plan.

[Blinky the 3-eyed Fish]

Maybe an example will help.

Safe harbor 401(k) plan gives a 3% safe harbor nonelective contribution. Cross-tested regular nonelective contribution has a last day requirement to receive the allocation. The gateway minimum is 5% of compensation.

Joe Blow terminates before the last day of the plan year. Thus, he gets the 3% contribution. But because he is benefiting for the nonelective piece, he must receive 5%.

Here is where there needs to be a provision in the plan document (it works much like an overriding top heavy minimum provision) that allows for Joe Blow to get 5%. You are not suspending the allocation requirement, per se, but rather providing the overriding gateway minimum.

Make sense?

[AndyH]

But if the plan did not have a SHNEC and instead had a profit sharing contribution that had a last day requirement, then the allocation conditions (last day requirement) would NOT be ignored. The person would get $0 and 0% and $0.00, not 3% or 5% as someone stated.

Got it now, Blink? Just kiddin. Blinky always gets it.

[Blinky the 3-eyed Fish]

I am glad Mike Preston is back to show me how often I do not get it. I still think he was kidnapped and left for dead, but fought his way against tremendous odds to get back here and share his knowledge.