Average Benefits Test & Safe Harbor Contributions

[Fred Payne]

Plan A is a 401K safe harbor with last day of year allocation requirements.

Mary meets eligibility requirements, defers into the Plan but terminates prior to end of year. She's entitled to the Safe Harbor contribution subject to Minimum Gateway.

John also meets eligibility, does not defer into the Plan and terminates prior to end of year. He receives no safe harbor contribution.

Mary and John receive no PS contribution.

If Mary or John worked less than 501 hours, they are not part of my coverage group. So do I ignore them completely for the various cross-test?

If either worked 501 hours or more, is Mary considered benefitting for purposes of the Ratio Percentage Test, and if necessary, the Nondiscrimiation Class Test? Or do I only get to consider her deferrals and match in performing the Average Benefits Test?

John, I presume, is still part of coverage group but not benefitting. Correct?

[Blinky the 3-eyed Fish]

Before going on, can you tell me why John does not get a safe harbor nonelective contribution but Mary does?

[Mike Preston]

Basic eligibility of less than 1 year, but SH only given to those that satisfy statutory eligibility?

[Fred Payne]

Blinky is perceptive. John would get a SHNEC because he earned comp. THe difference I wnated to portray is that one participant was excludable and the other wasn't.

But would answers be any different if the Safe Harbor was a basic match and John didn';t defer?

[Mike Preston]

I believe they would be different.

Fred, I sense that you are updating your 401a4 spreadsheet to deal with calculation of benefitting and are therefore asking a theoretical question, rather than a question based on a specific fact pattern. I admit to being somewhat confused about the theoretical question, however.

If someone is excludable, they are not taken into account when cross-testing. Since the condition (being excludable) defines the action (exclude from testing) there must be a portion of your hypothetical that is still to be identified.

As far as a given individual being eligible for a SH match, but not getting one because of being a terminated employee with less than 501 hours, that person would be benefitting in the k plan (eligible to defer) and excludable from the m plan (ineligible to receive match because failed EOY employment and worked less than 501 hours). That person would also not be benefitting in the 401a portion (employer contribution, if there is one in addition to the SH match) and hence not eligible for a gateway nor a top heavy contribution and therefore not be considered in the cross-testing analysis. However, this person would be in the average benefits test.

If, however, assuming this individual is not statutorily excludable (by working less than 1 year, etc.) and assuming the SH contribution is not the match, but the basic ER contribution, then the individual would be benefitting even if terminated with less than 501 hours and therefore both eligible for the gateway and would be included in the a4 testing because 1.410(b)-6(f) says so.

Is there another permutation you were looking for?

[Fred Payne]

Mike:

Yes, I'm trying to update my spreadsheet as I am running into a variety of situations in which I am not sure if I need to cover someone or in what test they must be covered.

A day or two after my post, I saw this news update from Corbel that started to address the same questions.

http://www.corbel.com/news/technicalupdates.asp?ID=230&T=

At the bottom of the news item, they mention that in their Cross-Tested Specialty Workshop, they "will explain both how to calculate the minimum gateway contribution and to whom the plan must provide the gateway contribution. As an added bonus, we have created an easy-reference chart that indicates whether a participant is entitled to the cross-tested allocation, top-heavy minimum and the minimum gateway contribution in 19 different cross-tested plan situations (401(k), safe harbor 401(k), early eligibility, etc.)."

I had already signed up for this full-day workshop, having taken the half-day workshop earlier this year. Hopefully this will answer all my questions.

Thanks for your comments.

[Mike Preston]

Okey, dokey.

[Guest merlin]

Example 4 of the Corbel Technical Update cited by Fred references a safe harbor match of 3%. Does it it matter if the match is a safe harbor or not, as long as the match is sufficient to satisfy the t/h minimum ?

[AndyH]

If I may chip in, this is not complicated IMO. If you "benefit under the plan", you are subject to the gateway. Benefitting under the plan means receiving a share of employer "non-elective" contributions. This could be a top heavy contribution, a 3% SHNEC, or a regular profit sharing contribution.

Eligibility or ineligibility for top heavy contributions has nothing to do with the gateway. Make that separate determination. Then if the person gets a non-elective contribution as a result, they are benefitting, and must get the gateway. It does not matter why the person gets the non-elective.

Deferrals and matches are not relevant to the gateway determinations because they are not part of the "plan".

Now it can get a little more complicated if you want to separately test otherwise excludables, but if not I don't think this is complicated at all.

[Blinky the 3-eyed Fish]

Andy, a fine explanation. One thing to add for those 401(k) tests that fail this year, a QNEC will also cause those that receive it to be considered benefiting in the nonelective portion of the plan.