Cross Tested Plan with SHNEC and allocation requirement

[TBob]

A 401(k) safe harbor plan is using the 3% SHNEC. The profit sharing uses cross testing. The document (from the prior TPA) has an allocation requirement in order to receive profit sharing (1000 hours).

A participant with less than 1000 hours is going to get the SHNEC because they were eligible (met 1000 hours previously) but can't get any of the P/S because of the allocation requirement. Therefore the gateway is not met and the plan can't use cross testing.

What is the best way to correct this plan design flaw? Can you amend the allocation requirement out of the plan (retroactively)? They are trying to allocate 2003.

[Tom Poje]

you have 9 1/2 months after plan year end in which you could use a corrective amendment under 1.401(a)(4)-11(g)

Depending on who the document is with, amend plan to include gateway language.

e.g. I believe Corbel now has snap on amendment to accomplish this

[AndyH]

TBob, you know you can allocate and cross test up to 9%, right? You only need to amend if you intend to give HCEs more than 9%.

And if a "snap on" amendment is not available, you basically need to have an amendment that says "in order to comply with the final regulations under 401(a)(4), for the plan year ending _____ the employer shall provide an additional contribution solely to participants who would otherwise receive only 3% an additional 2% of compensation" or something to that effect. Nothing complicated.

[TBob]

Unfortunately, giving the HCE only 9% doesn't get them to the maximum. It will take better than 15% so everyone else needs to get the 5% gateway.

It looks like the doc is a Corbel (PPD) Vol Sub. Does the "snap-on" amendment allow the plan to ignore the allocation requirement for the gateway portion of the contribution and apply the allocation requirement for any profit sharing allocation above the gateway?

AndyH...it sounds like your suggested amendment does the trick but I am curious if this is the standard approach to dealing with the allocation requirements that conflict with the gateway.

[AndyH]

No, the standard approach is to have language in the document that automatically does this. We call it "catch all" language. But absent such language, 1.401(a)(4) -11(g) provides the roadmap, which is the context of Tom's comment.

[Tom Poje]

and I might be using the term 'snap on' incorrectly. the way Iunderstand it

Corbel had submitted their documents for approval before gateway was even an item. hence the reason the language is not there.

I think Corbel then got approval for the gateway language which you add to your document without taking it out of the volume submitter or protype or whatever status it is in. but I don't do document work, so I dont know how all that works.

there are a lot better geniuses out there in the document area than myself

since you indicated the document was Corbel I would guess you can call them and verify what needs to be done.

[TBob]

I just got my hands on a copy of the amendment for the gateway language for PPD's Vol Sub. I basically says that you will give the eligible participants the gateway minimum without regard to the allocation requirements.

Thanks all!