gateway

[Belgarath]

We're having a little bit of debate on this. One opinion (including me) thinks you cannot use a QNEC toward your gateway minimum, since 1.401(k)-2(a)(6)(ii) requires you to pass 401(a)(4) both with and without the QNEC. Another is that this isn't true, and since 401(a)(4) was around before gateway, then this rule doesn't apply. I don't quite follow that argument.

What do y'all think? Can you use a QNEC toward satisfying gateway?

[Tom Poje]

I don't think, that's been my problem all along.

however, at the Q and A a year ago, the IRS personal said the QNEC (unless it is the safe harbor 401(k) version) can not be used to satisfy the gateway.

it simply can not be used to perform 'extra duty'. only a SHNEC can do that.

[Belgarath]

Thanks Tom! I'll be interested to see what others think as well.

[AndyH]

I agree. Also, it is the safest approach.

[John Feldt ERPA CPC QPA]

Ditto.

[Belgarath]

Ok, let me add a little grist for the mill. Following is from a colleague who is a heckuva lot smarter than I am, who decided to look at it a different way. Opinions?

Maybe we're looking at this backwards.

I can read 1.401(a)(4)-1(b)(2)(ii)(B) to say that any NEC's, including QNEC's, must be tested under the "general pot" contributions (i.e. the contributions which aren't 401(k) contributions and that aren't 401(m) contributions). So it would follow that QNEC's (or NEC's which aren't Q) could always be used for Gateway.

The question is whether these contributions can be used for ADP and ACP purposes. Under 1.401(k)-2(a)(6), a NEC can only be used for ADP and ACP purposes if it is a QNEC. And a NEC can only be a QNEC if the 401(a)(4) testing on NEC's can be met both with and without the amounts which are to be treated as QNEC's.

So if 401(a)(4) testing on the "general pot" of NEC's would not be satisfied if the QNEC's weren't used in Gateway testing, that would simply mean that the QNEC's couldn't be used in ADP and ACP testing.

Does this analytical approach seem to make any sense to you?

Some might observe that this is a distinction without a difference. I would strongly disagree. It seems to me to carve out a path which is consistent with the language of the regulations and which clearly characterizes how the NEC's are treated for 1.410(b)-(7) and 401(a)(4) testing purposes.

[AndyH]

Well then it is not a QNEC and the question is moot, right? Nobody is saying that a nonelective ER contribution cannot be used for gateway.

How could you forget Belechik's line, "It is what it is"? Which is it?

[Tom Poje]

my copy of the regs (1.401(k)-1(b)(5) and 1.401(k)-2(a)(6)(ii)) says to pass 401(a)(4) nondscrim a plan must be able to pass

i) including the QNEC (rarely a problem since they usually only go to NHCEs)

ii) excluding the QNECs

I think that is one reason why the IRS personal says they can't satisfy the gateway - you have to run the test excluding QNECs

so I am not sure I would agree QNEC are in the same 'general nonelective contribution pot' always. sometimes yes, sometimes no, depending on whether you are (i) or (ii).

it is interesting that no such rule applies to the SHNEC. see 1.401(k)-3(h)(ii)...'these contributions are not subject to the limitations of 1.401(k)-2(a)(6)(ii)...

(thank heavens you don't have 2 tests for coverage!)

[Belgarath]

Thanks.

Tom - FWIW, my line of reasoning is precisely the same as yours.