Smoothly Increasing Rates

[John Feldt ERPA CPC QPA]

Tom,

In your session at the annual ASPPA conference, you had a few slides about this, and on one of them, I see the comment,

"Remember, this is just to be able to satisfy the gateway - it doesn't guarantee passing nondiscrimination."

Are you saying that if the plan uses this, suppose it's entirely based on service only, 1 year intervals, and the requirements are met: (regular intervals, starts at 1%, decreasing ratios, no ratio over 2.0, no jumping by more than 5%) must the plan also run a general test regarding the allocations?

Is that what they mean in 1.401(a)(4)-8(b)(1)(viii), Example 1 part (iv), Example 2 part (v), Example 3 part (iv) when they say "if it satisfies paragraph (b)(1)(i)(A)"?

[Kimberly S]

The gateway requirements are the hoops you must jump through to get to the general test.

[Tom Poje]

yes, well put.

Kim can give the talks and I can 'retire', though I did hear a rumor that Elvis ASPPA-resley may try his hand at some type of presentation this fall.

[John Feldt ERPA CPC QPA]

Just to make sure, you are saying that a plan that utilizes the gradual age or service schedule under 1.401(a)(4)-8(b)(1)(iv) will NOT be required to provide the 5% gateway nor the 1/3 gateway, but the plan is still required to run (and pass) the general test. Is that correct?

[Tom Poje]

correct, because instead of the allocation gateway you have provided the smoothly increasing gateway.

[mwyatt]

401(a)(4) was there first. Gateway requirements are on top of that reg; you always have to pass 401(a)(4) - you may have to go further to satisfy the Gateway regs.

[Jim Chad]

I may be getting too picky. But is the gateway the hoops to get into the general test or is it the hoops to be able to run the general test on an accrual basis for a DC Plan?

[Tom Poje]

ah, young grasshopper

under 1.401(a)(4)-(8)(b)(1)(B) it is clear these are the hoops you pass through to be able to nondiscrim test a DC plan on an accrual basis.

there is no gateway if you were to test on an allocation basis.

note also, the rules apply to nondiscrim testing. thus they do not apply to coverage testing, thus you could run the avg ben % test on a 'cross tested' basis for coverage without having to provide the gateway.

[John Feldt ERPA CPC QPA]

Yes master, now I see clearly.