Gateway COntribution COnfusion

[perkinsran]

We have a 401k Cross tested SH plan. Employees receive 3% SH contribution starting on the first day of the month after 90 days of employment. The plan has a last day of employment provision for Profit Sharing. The company is providing an additional 3.5% for PS resulting in a total 6.5% (3% SH and 3.5% PSP).

My interpretation of the Gateway Minimum is that all NHCEs entititled to the SH would also be entitled to 2% of the additional 3.5% PSP. However, the law appears to allow us to disaggregate the plan and potentially exclude the people who have not satsified statutory service (<1 year) from receiving anything other than the 3% SH. I think.

Question, if we disaggregate the plan, must we run separate 401(a)4 test for each of the two disaggregated plans? Or can we disaggregatet he plan to demonstrate coverage and then run an (a)4 test for the entire plan? Or am I totally off base here?

[AndyH]

Do you have HCEs with <1 YOS? If not, then the disaggregated group automatically passes. Then test a(4) and 410(b) with just the 1 YOS+ people.

[perkinsran]

We do not have any HCEs with < 1year. So let me play this back to you.

We disaggregate the group to < 1 year and > 1year.

For the < 1 year group, we do not have to give them anything other than the 3% SH.

For the > 1year group, we must give terminated employees 2% (Gateway minimum) of the additional 3.5%.

For coverage and a(4) testing, we test the >1 year group only, since the other has no HCEs.

COrrect?

[Blinky the 3-eyed Fish]

Or can we disaggregatet he plan to demonstrate coverage and then run an (a)4 test for the entire plan?

First, your last post is all correct.

Next, to the quote, you must always treat coverage and nondiscrimination the same way. Thus, if you disaggregate for coverage, you must disaggregate for nondiscrimination testing. It is the disaggregation that allows you not to have to give the gateway to those with < 1 YOS because you aren't cross-testing that disaggregated group of people.

[perkinsran]

Thanks a lot to both of you. This really clears the air.

[Tom Poje]

I am confused on the terminology, though it is probably just the way it is written.

"we must give terminated employees 2% (Gateway minimum) of the additional 3.5%."

I am assuming you mean, the terminated ees who received 3% SHNEC must receive an additional 2% PS (unless thay fall into the group with < 1 year of service)

Note: Document must contain language to do this. you can't simply give it to the employees. If not, do corrective amendment (-11g) and amend for the future!

This also assumes the HCEs received 15% or more (SHNEC + PS) though that was never specified either.

It was also not specified if the plan is top heavy. If so, the ees with less than 1 year must receive the top heavy, so they might end up with 3% SHNEC from date of entry and an additional ps based on total comp.

[AndyH]

You are confused because you were up too late at post game SuperBowl parties, now just admit it!

[Guest merlin]

perkinsran, do you use Relius? If so, note that there is bug in 10.0 that will give you a warning that you are failing the gateway test by giving only 3% to the <1 year people. The warning is incorrect and the Relius people are working on it.

[jquazza]

Blinky and Perkinsran,

I agree with you as far as the gateway minimum is concerned (not having to give it to the otherwise excludable) however, I do think that in order to exclude the otherwise excludable from the discretionary PS contribution (the extra 3.5%,) your document has to specifically exclude these employees (I suspect the document doesn't otherwise, they would have been excluded from the SH as well.)

Bottomline, it is not because the employee is otherwise excludable that he is not entitled to the discretionary PS if he met the accrual requirements.

[Blinky the 3-eyed Fish]

Jquazza, of course the operation has to comply with the document. I never suggested otherwise.