Gateway ? for various dc scenarios

[abanky]

ok... let me know if any of what i believe is correct

I've got a 401(k) safe harbor plan with a new comp that is top heavy...

a) Since the plan is TH, i must give a top heavy minimum to plan participants who did not work 1000 hours, but are there on the last day of the plan year... (the contribution allocations provision says 1000 hours and last day of plan year)

b) since the plan is safe harbor, i must give either a match or a nonelective contribution to all participants whether they are active at the end of the plan year.

c) in order to pass the gateway for the NC, i must give the minimum of 1/3 of highest HCE rate or 5% to all active NHCE participants and all NHCE participants in category a or b

am I close at all?

Also, a plan document can't classify the safe harbor match or nonelective contribution as an elective contribution can it?

[Tom Poje]

a. true. if plan is top heavy, anyone who is a participant and is employed on the last day must receive the top heavy. since the top heavy is a nonelective contribution (the person did not 'elect' to receive it) then the rules clearly state that anyone receiving any type of nonelective must receive the gateway as well.

an exception applies if you were to test otherwise excludables separateluy.

b. true, you can't have hours or last day provision for a SHNEC or a SHMAC. once a participant, you get.

again, you could have the plan exclude otherwise excludables from the safe harbor. or the plan could have immediate eligibility for deferrals and a 1 year wait for all other contributions, but since it is top heavy, then you have to give that anyway, and so you are stuck with the gateway - but then again you could test otherwise excludables separately.

c.its 1/3 the allocation rate of HCEs or 5% of 415 comp, which can be from date of participation. just in case you have a formula based on a starnge definition of comp. plus if you use comp from mid year entry, you have to make sure the ee received top heavy based on full year comp.

a match is a match, and not a nonelective.

a SHNEC is a type of nonelective, hence counts towards the gateway

[abanky]

ok... I have this plan provision

It sounds to me like it is split like you said. Am i correct?

ARTICLE IV

CONTRIBUTION AND ALLOCATION

4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION

For each Plan Year, the Employer shall contribute to the Plan, except as otherwise

provided:

(a) The amount of the total salary reduction elections of all

Participants made pursuant to Section 4.2(a), which amount shall be deemed an

Employer Elective Contribution.

(b) On behalf of each Participant who is eligible to share in the

contribution below, such contribution, which amount shall be deemed an

Employer Elective Contribution.

For Plan Years beginning on and after January 1, 2002, a

nonelective contribution equal to 3% of the Participant's Compensation for the

Plan Year.

If, pursuant to Section 410(b)(4)(B), the Employer applies Code

Section 410(b) separately to the portion of the Plan (within the meaning of Code

Section 414(l)) that benefits only Eligible Employees who satisfy the eligibility

requirements of Section 3.1 that are lower than age twenty-one (21) and

completion of a Year of Service, the Plan is treated as two separate plans for

purposes of Code Section 401(k). Accordingly, if the Employer elects to make a

Basic Matching Contribution, an Enhanced Matching Contribution or a

Nonelective Contribution, then such contribution shall not be made on behalf of

Eligible Employees who have not attained age twenty-one (21) and completed a

Year of Service. However, in such a case, Deferred Compensation on behalf of

those Eligible Employees must satisfy Sections 4.5 and 4.7.

Contributions made to the Plan pursuant to this Section 4.1(b) are

intended to comply with Sections 4.5(a) and 4.7(a) pursuant to the safe harbor

methods permitted by Code Sections 401(k)(12) and 401(m)(11). However, if

matching contributions are made to this Plan or any other plan maintained by the

Employer, and (i) such matching contributions are made with respect to Deferred

Compensation or after-tax voluntary Employee contributions that in the

aggregate exceed 6% of the Employee's Compensation, (ii) the rate of matching

contributions increases as the rate of Deferred Compensation or after-tax

voluntary Employee contributions increases, (iii) at any rate of Deferred

Compensation or after-tax voluntary Employee contributions, the rate of matching

contributions that would apply with respect to any Highly Compensated

Employee is greater than the rate of matching contributions that would apply with

respect to a Non-Highly Compensated Participant and who has the same rate of

Deferred Compensation or after-tax voluntary Employee contributions, (iv) any

discretionary matching contribution made to this Plan and any other plan

maintained by the Employer, in the aggregate, exceed 4% of the Participant's

Compensation, then such matching contributions in the aggregate must satisfy

the "Actual Contribution Percentage" tests of Section 4.7. In this regard, the

Employer may elect to disregard, with respect to all Eligible Employees, all

matching contributions with respect to a Participant's Deferred Compensation up

to 6% of each Participant's Compensation, or matching contributions up to 4% of

each Participant's Compensation. In applying the "Actual Contribution

Percentage" tests, match contributions or nonelective contributions made

pursuant to this Section 4.1(b) that satisfy the safe harbor methods permitted by

Code Section 401(k)(12) may not be treated as matching contributions under

Code Section 401(m)(3).

The rules that apply for purposes of aggregating and

disaggregating cash or deferred arrangements and plans under Code

Sections 401(k) and 401(m) also apply for purposes of Code Sections 401(k)(12)

and 401(m)(11).

© On behalf of each Non-Highly Compensated Participant and Non-

Key Employee who is eligible to share in the Qualified Non-Elective Contribution

for the Plan Year, a discretionary Qualified Non-Elective Contribution equal to a

uniform percentage of each eligible individual's Compensation, the exact

percentage, if any, to be determined each year by the Employer. Any Employer

Qualified Non-Elective Contribution shall be deemed an Employer Elective

Contribution.

(d) A discretionary amount on behalf of each of the following groups

of Participants, which amount, if any, shall be deemed an Employer Non-Elective

Contribution. The Employer shall provide the Administrator with written

notification of the amount of the contribution to be allocated to each group.

(1) Group A shall consist of: Owners.

(2) Group B shall consist of: Non-owners.

For each Plan Year the Employer may make an additional

Employer Non-Elective Contribution ("Gateway Contribution") in an amount

necessary to satisfy the minimum allocation gateway requirement described in

Regulation 1.401(a)(4)-8(b)(1)(vi).

(e) Additionally, to the extent necessary, the Employer shall

contribute to the Plan the amount necessary to provide the top heavy minimum

contribution. All contributions by the Employer shall be made in cash or in such

property as is acceptable to the Trustee.