Need Cite Please

[DP]

I am in a discussion with my client's financial advisor who says you can have a "last day rule" in a Cross Tested 401k plan with a 3% non-elective SH. This plan has age 21, one year of service for eligibility. No early entrants.

I have explained to him that all terminated participants must receive the Gateway Allocation since they are receiving the 3% SH contribution. In the case of this plan the terminees would need to receive an additional 2% PS contribution to reach the Gateway.

This financial advisor says that out of all the TPA firms he works with, our company is the only one requiring this. I know I'm not crazy, but can anyone give me a cite to show him?

I've searched several times, but haven't had any luck finding what I need to prove my point. Thanks.

[Guest quinn the car fixer]

doesn't 98-52 say that you can't do that?

[Guest Pensions in Paradise]

DP - you're not crazy, you're absolutely correct. Its in the final regulations on cross-testing (Treas Reg 1.401(a)(4)-8(b)(1)). For a detailed discussion that you can present to the financial advisor, see pages 9.37 & 9.38 of The ERISA Outline Book. If you don't have it already, I highly recommend it.

No disrespect to the financial advisor, but I have a feeling he doesn't know what he's talking about. But if it turns out he's correct and the other TPA firms are not administering the plans correctly, this might be a good opportunity for you to win a lot of new business.

[Mike Preston]

The other plans probably aren't 3% SH plans. They are just new comp plans. Probably. I hope!

[FJR]

I think the answer to your question would depend on if the plan is top heavy or not. That is refering to the part about the min. gateway and the extra 2%.

[wmyer]

FJR, topheavy would have nothing to do with it. The question, as I understand it, is about terminated participants (who wouldn't need a topheavy contribution since they are not employed on the last day). But because the participants get the SHNEC, they must get the additional 2% gateway.

[Tom Poje]

1.401(a)(4)-8(b)(1)(v)©(iv)(A) minimum gateway if each NHCE has an allocation rate at least 1/3 the allocation rate of the HCE with the highest rate.

(B) deemed if each NHCE receives at least 5% of 415 comp (can be from date of entry)

note it says 'each' not 'only those meeting an hours requirement'. (though NHCEs who receive nothing to start with stay at nothing - this was made clear in the preamble)

a reminder: you cant simply bump people to the gateway. the document has to allow for it. otherwise you need a corective amendment.