age weighted safe harbor plan

[Guest Julie Woulfe]

Age weighted safe harbor plan, with 3% safe harbor contribution. 2 HCEs;

5 NHCEs, two of whom have terminated (one with <500 hrs). All seven participants get the 3% safe harbor, of course. Plan has 1000 hr and last day requirement. To pass P/S coverage, at least 4 of the NHCEs must be benefitting. Do I need to give one of the terminees P/S contribution beyond the 3% safe harbor, in order to pass coverage?

[jquazza]

It seems you're confusing coverage and nondiscrimination. All the employees benefits from the 3% SH nonelective, so your plan passes coverage at 100%. Because of the additional PS contribution, you have to demonstrate nondiscrimination via the rate group testing method so you have to run your general nondiscrim test under 401(a)(4).

[Guest Julie Woulfe]

OK....I understand the two different tests. You answered my coverage question. And yes, it makes sense that I would then need to give additonal P/S to one of the terminees in order to pass rate group test.

[Tom Poje]

not so sure on the nondiscrim part

you started with 5 nhces, all receive the safe harbor

only 3 receive the additional age weigheted piece

when testing rate groups it is conceivable you could pass nondiscrim testing

nhce concentartion is 5/7 = 71% so midpoint = 36.75%

that would mean you need only 2 nhces (2/5 = 40%) to satisfy rate group providing avg ben % test passes.

now normally an age weighted plan is exempt from the gateway, but you actually have a SHNEC + gateway. I think to do testing you have to kick the ees up to 1/3 of the HCE or 5%. I certainly could be wrong on that, I haven't seen this scenario addressed before.

[Blinky the 3-eyed Fish]

I agree with Tom that the gateway is most likely required for both terminees if you must cross-test the plan to satisfy nondiscrimination. An age-weighted schedule by design should satisfy the gradual age or service schedule requirement to avoid gateway, but by having the safe harbor nonelective, you have people receiving contributions outside of the age-weighted design.

Thus, with this set up, you will have this problem each year in which someone doesn't meet the allocation requirements. You know the old adage, two safe harbor provisions don't equal a safe harbor plan.

[Guest Julie Woulfe]

This is something I have definitely wondered about, but then when I research, all I find is that age weighted plans are not subject to gateway minimum. If I understand correctly, Tom and Blinky believe that if you have allocation requirements in a safe harbor age weighted plan, then the Plan is subject to gateway minimum. But a non safe harbor age weighted plan with allocation requirements would not be subject to gateway minimum?

[Tom Poje]

I believe your statement is correct.

I think one problem is the terminology of using gateway minimum.

any dc plan that uses cross-testing is subject to a gateway (not gateway minimum)

gateway minimum is simply the most common one used.

but an age weighted plan is really no different than a plan with broadly available bands - you are simply using 1 year age differences rather than 3 or 5 or whatever. the broadly available is simply another gateway.