Gateway minimum & excluded class of employees

[Guest M. Martin]

Please help with the following scenario to determine if an excluded class of employees must receive a gateway minimum:

Plan type: Cross-tested 401(k) plan, no match - plan is top heavy

Plan document Eligible Employee exclusions:

Excluded from Elective Deferrals - Union, Non-Resident Aliens and Other: Employees who are classified as paid on a "per diem" basis and not regularly scheduled to work over 999 hours during the plan year.

Excluded from Employer contributions - Union, Non-Resident Aliens and Other: Employees who are classified as paid on a "per diem" basis and not regularly scheduled to work over 999 hours during the plan year and Contract employees except to the extent to satisfy top heavy requirements under Section 416.

For purposes of performing the cross-testing would the Contract employees who receive a 3% top heavy contribution be required to receive a minimum gateway contribution?

Or, is this category of employee is treated as not benefiting for cross-testing purposes and therefore not required to receive the minimum gateway?

I have not found any examples addressing a situation exactly like this so any input would be greatly appreciated.

[Mike Preston]

They must receive the gateway.

[Guest M. Martin]

What if the plan passed the BRF test, the min. gateway wouldn't be required, correct?

[Mike Preston]

You'd have to explain in a bit more detail what specific test you are talking about.

[Tom Poje]

you are correct, if the plan can pass the broadly available requirements (which basically is the BRF test for each contribution group) then you have satisfied the gateway.

[AndyH]

Tom, would you mind elaborating a bit for those of us who do not use that option regularly?

[Belgarath]

Basically, each allocation rate is treated in a manner similar to BRF test under 1.401(a)(4)-4. This requires that each group would have to pass the nondiscriminatory classification test under 1.410(b)-4. And that's the first part of the average benefits test under minimum coverage requirements.

We don't use it ourselves, but I recall reading something by Sal which said that it was largely useless, because generally anyone who could pass this could pass on a contributions basis and therefore wouldn't need to use cross testing anyway. Which makes sense to me, and I'm guessing is one reason most of us don't deal with it.

[Tom Poje]

conceivably though a rate group could be 60%.

This would fail ratio %, but would pass BRF because the avg benefits % test if given a free ride (but for BRF only not for nondiscrim)

thus you could then proceed to cross test without having to have provide the 5% or 1/3 gateway.

so now you are able to have the avg ben % test on an accrual basis rather than on an allocation basis.

but Andy knew that, he was just throwing out a rhetorical response, I'm sure. (Dang him)

[Guest M. Martin]

Thanks all for responding, I will run it this way and see what happens. I'll post the results, pass or fail, as an example.