2 Year Eligibility

[Lori Foresz]

If a cross-tested top heavy 401(k) plan has 2 yr eligibility for the PS, but 1 YOS for the 401(k) and top heavy, do the 401(k) only people need to get the gateway even though they are not eligible for the profit sharing? I am slightly confused on this. It would seem no, but since they are not otherwise exludable and are benefitting under the ER contribution, my mind keeps saying maybe yes. Any help is greatly appreciated.

Many thanks

[Mike Preston]

The maybe yes part of your brain should be listened to.

[Lori Foresz]

That's kind of what I thought. So, basically, if you are a top heavy 401(k) plan, a 2-year wait for the PS gets you nothing except that the less than 2 YOS people only need to get the minimum gateway and not anything in addition to the minimum gateway.

So, you need to have a separate rate group for employees with greater than 1 YOS but less than 2 YOS and provide them only the gateway minimum.

But would these people be 100% vested in the contribution? I suppose the document has to be designed to have a 2-year cliff vesting schedule so that people who waited less than 2 years are not fully vested??

Thanks, Mike!

[Mike Preston]

Oh, now you are going to move beyond minimum benefits into 401(a)(4), huh? (g)

When testing under 401(a)(4) in this scenario, the people who receive the gateway are all part of the a4 analysis. If it works with them getting just the gateway, fine. If it doesn't, you can consider giving them more. If giving more to those people who meet the 2 year rule works, you can do that, too.

[Lori Foresz]

Yeah, sorry, I did kind of get greedy with you. I appreciate your help!

[Lori Foresz]

Okay. Now I've got an ERISA attorney asking me to cite the regulation that requires this. I printed out the final regs and couldn't find reference but I know I saw this somewhere. Was it in the preamble to the proposed regs? Any help is greatly appreciated.

Thanks

[Mike Preston]

I'm not sure I'm understanding what you are asking for. Are you saying that an ERISA Attorney wants you to weave the citations together that cover 416, 401(a)(4), cross-testing, gateways and eligibility in order to back up a particular claim?

An ERISA Attorney shouldn't need that.

Now, if he/she wants something more focused, that is a different story. In that case, what, precisely, is he/she looking for?

[Lori Foresz]

Hi,

Sorry for being unclear. He is questioning having to give the gateway to employees who have less than 2 YOS but greater than 1 YOS. I thought that was referenced in the final regulations, but I"ve searched and can't find it. I think this concept may have first been introduced in the preamble to proposed regulations and evolved through subsequent commentary and interpretation outside any reglations.

Does this sound familiar? I have all kinds of reference materials that say an employee who benefits under the ER portion of the plan and is not otherwise excludable must get the gateway. But, I can't find it in the final regs. AGHH!'

Thanks for your help!

[Mike Preston]

Random thoughts. Somewhere in here is what you are looking for. Pick and choose at will. I'm not sure it is a simple cite, per se, at least not a single cite. Let's start with some principles and see if that doesn't satisfy the proverbial attorney. 401(a)(4) and 410(b) are linked. If you are testing one, you are testing the other. Once you have a plan that has employer contributions you must satisfy the gateway requirements if your intent is to cross-test to satisfy a4. The definition of a plan is in 1.401(a)(4)-12, which refers you to 1.410(b)-7(a) and (b). 1.410(b)-7©(3) talks about disaggregating when a plan benefits otherwise excludable employees. It refers you to 1.410(b)-6(b)(3)(ii). That section says that when you disaggregate like this, you can't use the 2 year rule, only the one year rule. That is, it says you have to ignore 410(a)(1)(B). That much, should be clear. The gateway rules require that there be no restructuring. That is, you can't segregate the plan into two pieces, one that satisfies 410(b) after application of the two year rule and the other which includes "everybody else". QED.

'Nuff?