Gateway Testing and Prevailing Wage Contributions

[Guest Grumpy455]

A profit sharing plan provides for prevailing wage contributions and a discretionary profit sharing contribution. The profit sharing formula is a new comp. formula with multiple contribution groups.

For 410(b) purposes, the nonelective contribution component consists of the prevailing wage/profit sharing contribution. In order to receive a prevailing wage contribution, a participant only has to work on a prevailing wage job. In order to receive a profit sharing contribution, a participant must be employed on the last day of the plan year and work 1,000 hours during the plan year.

For 401(a)(4) purposes, it is not clear to us who must receive the minimum gateway contribution. For example, must an individual who receives 50% of their wage as prevailing wage (and therefore receives a prevailing wage contribution) and 50% of their wage as nonprevailing wage have to receive the minimum gateway contribution even if they (1) do not work 1,000 hours during the plan year or (2) terminate during the plan year?

Thanks in advance for any help!

[AndyH]

Yes. Why would you think not? Anybody who benefits under the plan must get the gateway.

[Blinky the 3-eyed Fish]

I agree. Though Grumpy, you realize that the prevailing wage can count toward the gateway requirement since it is a nonelective contribution by definition. I don't have much experience with these plans, but the ones I have seen have provided quite generous prevailing wage amounts that easily satisfy gateway even if the person splits their time.

[Guest Grumpy455]

Thanks for your responses. If there were only profit sharing contributions, then the only participants entitled to the gateway contribution would be those who completed 1,000 hours of service during the plan year and were employed on the last day of the plan year. Only a few of the client's employees work on prevailing wage jobs and receive prevailing wage contributions. An employee receives a prevailing wage contribution (assuming they receive a prevailing wage) regardless of whether they work 1,000 hours during the plan year or are employed on the last day of the plan year. Assume the client's plan has 1,000 participants and only 1 participant receives a prevailing wage contribution. Further assume that only 200 of the 1,000 participants work 1,000 hours during the plan year and are employed on the last day of the plan year. If there were only a profit sharing contribution, the gateway contribution would only have to be provided to the 200 participants who actually were entitled to share in the profit sharing contribution. However, because a single participant also received a prevailing wage contribution, now the employer must provide the gateway contribution to all 1,000 participants (if I understand the response correctly).

[AndyH]

No, only someone who receives a contribution, either profit sharing or based upon prevailing wages benefits under the plan. Only those who benefit are subject to the gateway. Something is being lost in the translation.

If it makes you feel better, I think an argument can be made that a prevailing wage contribution could violate the prevailing wage requirements if it is used to offset another contribution (such as the higer amount going to HCEs). I am certainly not an expert in that area, but some day the issue of a prevailing wage contribution offsetting another contribution could arise.

[Guest Grumpy455]

Ok, that makes sense. Thanks!