Last day rule, 5% gateway, July 1 entry date, etc.

[Guest rffahey]

Here are some situations that I would appreciate clarified:

A. Safe harbor 3% plan with cross tested profit sharing ( owner getting 20% allocation and employees getting 5% ( 3% safe harbor plus 2% PS ). An employee enters 7/1/03 on a 12/31/03 plan year end. The plan is top heavy. What compensation period do they pay on and what %?

B. Same as A. above but not top heavy.

C. Same as A. above but no profit sharing contribution this year.

D. Same as A but an active participant terminates 6/1/03 with 900 hours ans the plan has a last day / 100 hour rule. Since he gats the 3% safe harbor up to 6/1/03 does he also get 2% gateway minimum ?

Thank You

[AndyH]

A. For the gateway, you can start counting compensation on 7/1/03, i.e. in date of participation.

For top heavy purposes, you need to provide the 3% for the entire year.

So, you need to give the greater of these.

B. Only 5% from DOP is necessary.

C. What is the question? You still have the gateway to satisfy or you must limit HCEs to 9%.

D. Yes, the 3% must be increased to 5%.

[pmacduff]

All will be contingent on the definition of compensation in your Plan Document but in general:

A) The top heavy has to be on the full year wages. I've been told that you compute the 3% on whole year wages and 5% on participation wages and give the participant the greater of the 2 amounts -

B) 5% on participation wages

C) 3% on participation wages (for SHNEC) if no other ER contributions.

D) I would say 5% on all wages because participant is >500 hours, but your Plan Document should define who is eligible to receive the gateway minimum.

Again - the definitions in the Plan Document will rule.

[AndyH]

The definitions in the plan will have to be overruled (e.g. amended) if the gateway is not satisfied, however.

[pmacduff]

I agree with Andy - but gee Andy - do you really think there are those cross tested plans out there without an up-to-date totally accurate Plan Document that might not clearly define gateway minimums??? - I know - it's probably not polite to be sarcastic around the Holidays!!!!

[AndyH]

I was alluding to situation D in particular. I'll bet there are lots of documents that don't handle that type of scenario well.