TH Cross-Tested Plan w/ 401(k)

[Guest dannyoc13]

I have a plan that is top-heavy, has a 401(k) feature and is cross-tested. The eligibility for 401(k) is entry on the first of the month following date of hire - for the PS portion, participants enter on the first day of the Plan year in which they complete one year of service. To receive a PS contribution, you need to be employed on the last day w/ 1,000 hours.

As it is now, I have about 45 employees - with 3 HCE's. Only 12 of these employees have met the PS requirements and are eligible for the PS portion of the Plan. The 3 HCE's are wanting to maximize their PS - they did not contribute 4k for the year. Do I have to give the 5% gateway minimum to the 33 other employees who are employed but have never worked 1,000 hours and never met PS requirements, regardless of their employment status on the last day of the year?

Any thoughts would be appreciated.

[Mike Preston]

On a quick read, the answer is no. Gateway contributions are only given to those who otherwise have a dollar in regular er contributions. If these folks are statutorily excludable, I can't see any reason to give them a gateway. However, it sounds like a longer read might indicate the answer is yes. Since this is a top-heavy plan, and since many, if not all, of these people come into the k portion of the plan, if they are employed on the last day of the year, how do you avoid giving them a th contribution of 3%? For those folks, I'd say they are subject to the gateway.

I think.

[Tom Poje]

plan is top heavy, so all active participants must receive at least that, whether they have worked a year or not.

Thus all those people have received a nonelective contribution.

now, plan is broken up into 2 'plans' - statutory includables and otherwise excludables.

the otherwise excludable group consists of 0 HCEs. that 'plan' is tetsed on an allocation basis (well, since there are no HCEs it wouldn't really have to be tested, but for the sake of the argument, you could have tested it and of course it would pass.)

If I cross test, I have to provide the gateway. but I am not crosstesting, so no gateway is needed.

The statutory includables would have to provide the gateway if cross tested, of course.

[Guest dannyoc13]

plan is top heavy, so all active participants must receive at least that, whether they have worked a year or not.

Thus all those people have received a nonelective contribution.

now, plan is broken up into 2 'plans' - statutory includables and otherwise excludables.

the otherwise excludable group consists of 0 HCEs. that 'plan' is tetsed on an allocation basis (well, since there are no HCEs it wouldn't really have to be tested, but for the sake of the argument, you could have tested it and of course it would pass.)

If I cross test, I have to provide the gateway. but I am not crosstesting, so no gateway is needed.

The statutory includables would have to provide the gateway if cross tested, of course.

Thanks for the input - let's take this one step further. Let's assume that testing my excludables separately, I give them the 3% TH minimum. For my non-excludables group, my HCE group is relatively young so it ends up to where if I give them 16.67% of their comp. to get them the desired $35k they want, I need to give my remaining NHCE non-excludables something like 12.5%.

Do you think if I decided to NOT exclude my statutory exclusions and give all NHCE in my rank & file group the same percentage it would help the test?? I think it would not be good for the AB%T, but I would think that it would help my rate group testing since I will have a larger population of young people to work with whose EBARS would hopefully be higher. I may have to give everyone a little over 5%, but I'd think that might help instead of having one group at 12.5% and the excludables at 3%.

Again - any thoughts are very much appreciated.

[Tom Poje]

there is no requirement that one exercise the option of testing otherwise excludables separately.

and in fact, you dont have to be consistent from year to year, it is simply an option (I guess somewhat like having an option to which mortality table you use in testing, what interest rate , etc.)

so, if you have some young people in the otherwise excludable group you might do better to combine all ees and simply provide a gateway rather than an allocation. (Make sure your document allows the gateway)

remember also, you are only talking about the a(4) test. your avg ben % test would include all ees if you choose not to use the otherwise excludable option.

however, you could still run the ADP test using otherwise excludables.

again, while the otherwise excludable is an option, you still have to be consistent when performing the ADP or ACP test if using prior year testing.

[Guest dannyoc13]

there is no requirement that one exercise the option of testing otherwise excludables separately.

and in fact, you dont have to be consistent from year to year, it is simply an option (I guess somewhat like having an option to which mortality table you use in testing, what interest rate , etc.)

so, if you have some young people in the otherwise excludable group you might do better to combine all ees and simply provide a gateway rather than an allocation. (Make sure your document allows the gateway)

remember also, you are only talking about the a(4) test. your avg ben % test would include all ees if you choose not to use the otherwise excludable option.

however, you could still run the ADP test using otherwise excludables.

again, while the otherwise excludable is an option, you still have to be consistent when performing the ADP or ACP test if using prior year testing.

Great - thanks for your help. What actually worked out best was to include all employees in the cross-test by giving them the gateway min. of 5%. I am passing on the strength of my avg. ben. test - the rate group tests are not good but being able to give this larger population of young workers a gateway minimum helped the avg. ben. test alot. ADP was a non-issue since no HCE's contributed 4k.