Gateway must be met if ABT done as benefits?

[Guest dietpepsi]

Based on the facts below, does the profit sharing allocation have to meet the gateway requirements of the final comparability regulations?

A profit sharing contribution is allocated to a select group of employees using an integrated points allocation formula that requires a general nondiscrimination test under IRC §401(a)(4).

The rates used in the rate group test were calculated using contribution rates, and the ratio percentages of all rate groups met the nondiscriminatory classification percentage.

The average benefit percentage test did not pass using contribution rates, but did pass when tested using equivalent benefit accrual rates.

Do the gateway requirements apply to this allocation because the average benefit percentage test was done based on equivalent benefit accrual rates?

So in other words, the allocation rates used in the rate group test are not EBR’s but EBR’s were used in the average benefit test and the average benefit test had to be used for some of the rate groups to pass coverage.

Thanks

[Laura Harrington]

No.

I base my opinion on Treas. Reg. §1.401(a)(4)-8(b)(i)(A) which refers only to the substitution of equivalent accrual rates for allocation rates in the determination of the rate groups, not on the determination of whether or not each rate group satisfies one of the tests under IRC §410(b).

Treas. Reg. §1.401(a)(4)-8:

(b) Nondiscrimination in amount of benefits provided under a defined contribution plan-- (1) General rule and gateway-- (i) General rule. Equivalent benefits under a defined contribution plan (other than an ESOP) are nondiscriminatory in amount for a plan year if--

(A) The plan would satisfy §1.401(a)(4)-2©(1) for the plan year if an equivalent accrual rate, as determined under paragraph (b)(2) of this section, were substituted for each employee’s allocation rate in the determination of rate groups; and

(B) For plan years beginning on or after January 1, 2002, the plan satisfies one of the following conditions--

(1) The plan has broadly available allocation rates (within the meaning of paragraph (b)(1)(iii) of this section) for the plan year;

(2) The plan has age-based allocation rates that are based on either a gradual age or service schedule (within the meaning of paragraph (b)(1)(iv) of this section) or a uniform target benefit allocation (within the meaning of paragraph (b)(1)(v) of this section) for the plan year; or

(3) The plan satisfies the minimum allocation gateway of paragraph (b)(1)(vi) of this section for the plan year.

[Mike Preston]

I didn't look at Laura's cites, so I'm not specifically saying that the rationale used is the definitive supporting argument. But I know her conclusion (No.) is correct.

[Guest dietpepsi]

Thank you.