Gateway ?

[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?

Do i have to use either a or b in the nondiscr testing?

[AndyH]

a and b are right

c is close. The match does not count. You give the gateway to anybody who "benefitted" under the plan, i.e. received a nonelective contribution.

(Unless the otherwise excludable rule applies and you invoke it, that is.)

Re your questions:

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

Nope, it is what it is.

"Do i have to use either a or b in the nondiscr testing?"

You would use any nonelective contribution in the rate group part of the test and (almost) everything but the kitchen sink in the Average Benefits Percentage Test if needed.

[abanky]

Andy would you be so kind as to look at my document language i posted in 401(k) forum?

[AndyH]

Ah, double posting. Two demerits. At least Tom and I seem to have said the same thing.

If you want to get specific with your question, maybe someone will answer, but what you have cited is just a bunch of what-if qualifier language. I'm not sure what question that would answer. It says what happens if ..... but doesn't say whether the condition is true.

Sorry I can't be of help with that.

[Guest crosseyetester]

Somewhat related question about a cross tested plan...

Entry for 401(k) is immediate, but for PS portion is after 1 year.

The one HCE will only receive $44,000 as a profit sharing contribution.

All other active participants will receive at least 5% mininum gateway requirement.

What would a participant with under one year of service who is only participating in the 401(k) portion of the plan receive? Would she automatically get 5% from the employer to satisfy top heavy and minimum gateway requirements, similar to those actives who had < 1000 hours, and then not get the additional discretionary that the regular actives will be getting?

If so then does her compensation count toward maximum deductibility? Normally, I would have thought not to count her compensation since it only applied to 401(k) which is not include toward that 25%, but I'm really not sure here.

[zimbo]

Assuming the plan is top heavy, the new entrant with less than 1 year of service will end up getting the 5% gateway because the TH minimum gets him to 3% and then he is considered "benefitting" in the plan and so is subject to the gateway which raises him to 5%.

No additional contribution is required. Since that person is in the plan and benefitting, I would count comp towards the 25% limit.

[AndyH]

Agree. Well stated.

[Mike Preston]

Really?

[rcline46]

Aha! If testing with Otherwise Excludible Employees, the K test and the (a) test change, and said employes may get Top Heavy, but NOT Gateway (depending on your document).

[AndyH]

Agreed. Well stated.

(ok, I should have actually read the posts. At a glance, it looked good). (Reason #58)

[Mike Preston]

Bingo.

[Guest crosseyetester]

1. I was not aware of the Otherwise Excludible Employees testing option so looking that up, it seems to me that you can separate such participants and test them separately. It also seems to me that the plan document does not need to state this specifically, this plan's document just refers to Treasury Regulation Sections. In this case there is only one NHCE who would be Otherwise Excludible so that portion of the test passes and the participant will receive just the 3% top heavy contribution. Please correct me if I'm wrong.

2. As a related example, which I've seen on here before but I don't recall the answer...say the participant enters mid year, and earned $50,000 in each half of the year for total comp of $100,000. In this plan the minimum gateway is based on participation comp and I know that top heavy contributions are based on full year comp. The 5% minimum gateway for the period of participation is $2,500. Is the top heavy minimum calculated separately for each period (before participation = a $1,500 deposit and after participation is already satisfied)? Or is the top heavy minimum based on full year comp and would total $3,000 with an actual deposit of $500?

[zimbo]

I agree with the Otherwise Excludable exception. Good catch. I was sort of giving the textbook answer rather than the better more practical response.

Just make sure that your document makes direct or at least indirect reference to this "otherwise excludable option" if it describes the gateway contribution.

Also to answer your last point, I believe the TH minimum is based on the entire year's comp regardless of the participant's entry date within the year and also regardless of the Otherwise Excludable option.