Gateway Minimum

[Guest cynthiar]

I have a cross-tested plan that is safe harbor. The plan has five participants (two HCE and 3 NHCE). The eligibility for the safe harbor is one month and the profit sharing is 12 months. This is a takeover plan.

One participant was eligible for the safe harbor contribution, but not the profit sharing contribution. The plan gave a profit sharing contribution of 8.75% to the HCE and 5.56% to the NHCE. Is my gateway minimum 2.92% (1/3 of 8.75) or 3.92% (1/3 of 11.75).

[Archimage]

1/3 of 11.75%

[Blinky the 3-eyed Fish]

Although, you don't say how you are performing the cross-testing. You could perform the nondiscrimination testing by splitting the otherwise excludable employees. If you do that AND your document makes this allowable, you would not have to provide the gateway minimum at all to the non statutory participant.

[AndyH]

That is an interesting comment about the document. That could be easily overlooked.

[Guest cynthiar]

Where would you look in the document to check if the otherwise excludible rule can be used.

I originally thought you could divide the plan into two plans as well, but was convinced by our attorney that since the participant became eligible for the safe harbor contribution after one month he would require the minimum gateway contribution because he was benefiting under "the plan" that consists of employer's nonelective contributions.

[Blinky the 3-eyed Fish]

Generally, the document will not specify such to provide flexibility in testing. I think the question lies in what language you have in your document to provide the gateway contribution. Here is how this type of plan would be worded with my document provider.

-Various rate groups

-Overriding gateway language that works just like top heavy overriding language.

-Silent on the use of otherwise excludables

So, in this case, if the nondiscrimination testing does NOT use otherwise excludables, the overring gateway language provides the gateway minimum to the one participant as required by law. Without the gateway language in the document, there would be no provision to get the one participant a gateway minimum.

However, if I do use otherwise excludables, the person is not required to receive the gateway minimum and thus my overring gateway language is not triggered. But here it depends on how this is worded. For example, if it says something like "Yo, yo, yo give the gateway to all who benefit under the nonelective portion of the plan, dude", then this language would bring in the one participant.

So, in summary, as often touted on these boards, what does your document say?

BTW, your attorney is not giving you the full picture. (I hereby caveat this comment to state that such behavior is not typical of all ERISA attorneys and should be judged on an individual basis.)

[Mike Preston]

It depends on whether you want the answer from a theoretical basis or from a "real world" perspective. The bottom line is that you have to follow the terms of the document as it is drafted with respect to the provision of gateway contributions.

Theoretically, however, a plan can be drafted such that those who do not satisfy statutory eligibility are excluded from receiving a gateway minimum.

Personally, I don't see why documents provide any language at all with respect to the provision of the gateway.

[AndyH]

Right.

cythiar, a plan could have language that says that all eligible employees shall receive the lesser of 1/3 the highest % of pay allocation to any HCE or 5% of pay. And assume that plan had only a 3 month wait for eligibility.

So then how would you exclude an "otherwise excludable" from getting the allocation? I don't think you could, only because of the language in the document.

[Guest cynthiar]

Please help me sum this up:

I have reviewed the document and the language is silent regarding use of otherwise excludable and application of gateway minimums.

So does that mean mean I can test using the otherwise excludable rule and not give a gateway contribution to the participant who came in early.

OR

Does it mean I cannot use the otherwise excludable rule and have to give the participant who came in early the gateway minimum.

Thanks

[AndyH]

You can probably use the otherwise exludable rule but we cannot say for sure without knowing what the document says.

[Mike Preston]

I'll go a little further. I think it is highly probable that you can do the former. A quick review by ERISA counsel should settle the matter.

[Guest cynthiar]

I found out this plan is top heavy. So isn't it true that if you are eligible for any part of the plan you need to get the top heavy minimum using full year salary. Even though the eligiblity for DF, MT and SH are one month and the PS 12 months I cannot elclude this person from the gateway test because he gets the top heavy minimum and therefore needs the gateway minimum to pass.

[AndyH]

No, that is not true. You cannot exclude him from receiving the top heavy minimum, but even if he gets the top heavy you can still test him as "otherwise excludable" under the 401(a)(4) test which includes the gateway.