Age-weighted 401(k) with 3% nonelective safe-harbor

[ac]

I am preparing the allocation for an age-weighted 401(k) plan. The plan requires a 3% non-elective safe-harbor contribution.

First, all participants that have met eligibility requirements and are eligible to defer under the 401(k) must receive the 3% nonelective safe-harbor contribution. This includes participants that terminated prior to the end of the year and worked less than 500 hours.

Next, the employer discretionary contribution is allocated on an age-weighted basis. The plan requires employment on the last day of the plan year or completion of 500 hours.

We have one employee that met participation requirements and terminated prior to the last day of the plan year and worked less than 500 hours. Should he receive the 3% nonelective safe-harbor? (I believe yes)

Given the 3% nonelective safe-harbor contribution, is the plan still considered an age-based plan for gateway relief?

[AndyH]

Such a plan is exempt from the gateway if one of two alternative conditions are met. They are specified in the 2001 final regulations. I believe that there has been some discussion of these on this Board, so perhaps a search would be useful.

(This constitutes reason #40 why we need Mike P back because he probably had this memorized-although I wouldn't put it past Tom P either)

[No Name]

Preston works on a lot of DBs for my former firm. I'm surprised you can't find him from the glow of his sliderule!

[Tom Poje]

Andy way over rates me, I have to look everything up.

unfortunately I am beginning to get a better idea of where to look things uo.

he refers to 1.401(a)(4)-8(b)

the excpetions to the minimum gateway being

1. broadly available bands (would seem to fail this since one ee only gets 3% and another the same age gets 3% plus the age weighted)

2. age based allocation rates (while the plan does have this, that is not the sole contribution -so the question is does that take it out of this option)

I'd lean toward the conservative side and provide the gateway to the terminated ee.

he certainly has to receive the 3% SHNEC - no option there. now, once he has received the SHNEC, he has received a nonelective in one way shape or form. and anyone who receives a nonelective has to receive the minimum gateway. This person is not a part of the group 'age based allocation rate'.

for example lets suppose the plan was top heavy, immediate elig to defer, 1 year wait for age based allocation. Plan is not safe harbor. At that point would you provide the minimum gateway for him? I think you would have to.

I can't believe the addition gateway to a terminee with less than 500 hours would cost that much, and quite possibly the ee in question is not fully vested either. remember, the minimum gateway is not fully vested. Now, if the document does not have gateway language in it, then I guess this would have to be done through a corrective amendment.

[AndyH]

Actually what I was referring to requires deeper digging. It is not easy reading:

"D) Minimum allocation rates permitted. A schedule of allocation rates under a plan does not fail to increase smoothly at regular intervals, within the meaning of paragraphs (b)(1)(iv)(B) and © of this section, merely because a minimum uniform allocation rate is provided for all employees or the minimum benefit described in section 416©(2) is provided for all non-key employees (either because the plan is top heavy or without regard to whether the plan is top heavy) if the schedule satisfies one of the following conditions--

(1) The allocation rates under the plan that are greater than the minimum allocation rate can be included in a hypothetical schedule of allocation rates that increases smoothly at regular intervals, within the meaning of paragraphs (b)(1)(iv)(B) and © of this section, where the hypothetical schedule has a lowest allocation rate no lower than 1% of plan year compensation; or

(2) For a plan using a schedule of allocation rates based on age, for each age band in the schedule that provides an allocation rate greater than the minimum allocation rate, there could be an employee in that age band with an equivalent accrual rate that is less than or equal to the equivalent accrual rate that would apply to an employee whose age is the highest age for which the allocation rate equals the minimum allocation rate."