Otherwise Excludible Employee Rule

[Guest cease]

I was reviewing this rule which had been posted on Corbel's website recently and wanted to know how the order of nondiscrimination testing works.

A calendar year profit sharing plan that has a 401(k) feature has two eligibilty provisions. For 401(k) elective deferrals, first of the month following 3 months of service. For profit sharing contributions, 01/01 and 07/01 following the completion of 1 year of service (hours of service method).

The plan is NOT top heavy. The highest percent of pay to a rate group that consists of HCEs is 20%. No greater than 5% owners were hired in the current plan year.

Is the "Otherwise Excludible Employee" rule performed prior to allocating the minimum gateway 5% contribution? Or, is the minimum gateway 5% contribution provided followed by the "Otherwise Excludible Employee" rule?

The reason for this question is that in this plan's case, the intention is to maximize certain HCEs, provide the minimum amount to NHCEs, while at the same time providing no contribution to certain other HCEs.

[Blinky the 3-eyed Fish]

It's not a matter of order, so rather than answering your ordering question I will state it this way. How gateway interacts with otherwise exludables is a function of how the general testing is performed. So, in your case, in trying to minimize the NHCE's, you are obviously going to want to try to separate the otherwise excludables for general testing and coverage for the nonelective portion of the plan. Thus, your post indicates that no HCE's would be in the otherwise excludable category, so they would clearly need to get no nonelective contribution.

Of course, check your document to make sure the gateway language allows for this. If done properly, like I would suspect from Corbel, it will.

[ak2ary]

The gateway contribution is only required for employees who are receiving a contribution under the plan. So...if the plan is not top heavy and your otherwise excludables are not eligible under the profit sharing portion of the plan, they are not required to get a gateway.

The same is true for terminated employees or < 1000 hour employees if the plan has a last day or 1000 hour rule