Minimum gateway & top heavy age-weighted plan.

[R. Butler]

I've got a basic age weighted plan that has a 1,000 hour/last day requirement. There are 5 NHCE's. One terminated with more than 501 hours . One worked less than 1,000 hours, but gets the top heavy minimum. The other 3 get an allocation, but out of those 3, 2 of them are bumped up more to meet top heavy minimums.

I want to avoid the gateway. Age-weighted plans are generally exempt from the gateway, but are the top-heavy minimums nullifying that exception?

Thanks in advance for any guidance.

[Tom Poje]

your assignment is to read

1.401(a)(4)-8(b)(1)(iv)(D)

[R. Butler]

I actually had read that & pretty much got lost, but let me give it a crack to see if I have any clue.

1. I don't see that I can meet (8)(1)(iv)(D)(1). The plan uses a basic age-weighted formula, so I'm thinking one year bands. I have 20, 25 & 30 year old all receiving the 3%. The way I read it there has to be an increase with each band. I don't see that I meet that.

2. Maybe I meet (8)(1)(iv)(D)(2). If I'm understanding correctly I look at the oldest person receiving the minimum & if that person's EBAR is greater than or equal to the EBAR of each person receiving more than the minimum contribution than I meet the exception. So if the oldest person who has been bumped up to 3% has an EBAR of 10% & all of the employees receiving an allocation of more than 3 only have EBARs of 5%; I meet the correction.

Do I have some sight or am I still totally blind?

Thanks

[Tom Poje]

(iv) says you have a gradual age or service schedule.

the way I read that an age weighted plan falls into that category.

or put another way: does an age weighted plan have gradual age bands?

I'd say 'yes'

lets see

(1) schedule defines bands bands based on age

yes

(2) allocation rates increase smoothly at regular intervals

yes

(B) this adds the requirement that the bands increase no more than 5% points, etc.

age weighted plans will only be different from one band to the next by the interest assumption (e.g. 1.08%) or whatever so 'yes'

plus adds the requirement that the ratio from one band to next cant be more than 2.0.

in this case the ratio will always be 1

© regular intervals - bands have to be the same length - in this case the bands are 1 year, so those are the same length

(D) minimum rates permitted - this is where the top heavy kicks in, it is the minimum rate

[rlb64]

I realize this post is old, but I'd like to continue the discussion. The plan we have has a 3% safe harbor as an offset to the age weighted piece and the plan is top heavy. How can we rely on 1.401(a)(4)-8(b)(1)(iv)(D) as the way to avoid gateway minimum? We have an hce who is also a key getting bumped up to the 3% safe harbor (more than the age weighted allocation).

We can't rely on (D)(1) in an age based only plan because someone will be less than 1% of pay in a hypothetical schedule test (it seems to me).

So, we're left with (D)(2). In an age based plan, every participant is a separate age band,correct? The minimum allocation is 3% and applies to any employee. How do we pass this?

I think I'm asking someone to help intepret this regulation in terms of an age weighted plan as opposed to an age based plan grouped in bands like the example in the regs provide.