401(a)(4) Test for SH 401(k)

[Dougsbpc]

Suppose a safe harbor 401(k) plan with a 3% Employer SH exists. Also, HCE's do not receive the SH contribution. Now the employer is interested in making an additional profit sharing contribution. The profit sharing contribution will be 10% of compensation for the company owner and 2% to all others.

1) The 3% SH and 2% PS allocation together satisfy the gateway.

2) The 3% SH and 2% PS allocation together satisfy the rate group test when compared to the one HCE.

Question: Must SH, PS, and salary deferrals be considered for the average benefits percentage test?

[J Simmons]

Yes, but no catch-up salary deferrals.

[Tom Poje]

yes and no.

as for 1) the owner received 10%. the gateway is the lesser of 5% or 1/3 the rate of the HCE, which will only be 3.334%. Thus, if you had someone who received the 3% safe harbor but failed last day or hours requirement (if they exist for the profit sharing) the individual would not be bumped up to 5% for gateway purposes. they would however have to receive the 3.334% since you would be cross testing. so, yes 5% is sufficient to satisfy the gateway, but there may be other issues involved.

as for 2), if by the statement you mean there is one rate group test and it includes the safe harbor contribution as well as the profit sharing, then yes, that is true. as to whether that will actually satisfy the test, that depends on the ages of the NHCE. if the NHCEs are all older than the HCE, then no, as the statement is phrased, the 3% SH and 2% SH will not satisfy the rate group test.

[dmb]

yes and no.

as for 1) the owner received 10%. the gateway is the lesser of 5% or 1/3 the rate of the HCE, which will only be 3.334%. Thus, if you had someone who received the 3% safe harbor but failed last day or hours requirement (if they exist for the profit sharing) the individual would not be bumped up to 5% for gateway purposes. they would however have to receive the 3.334% since you would be cross testing. so, yes 5% is sufficient to satisfy the gateway, but there may be other issues involved.

as for 2), if by the statement you mean there is one rate group test and it includes the safe harbor contribution as well as the profit sharing, then yes, that is true. as to whether that will actually satisfy the test, that depends on the ages of the NHCE. if the NHCEs are all older than the HCE, then no, as the statement is phrased, the 3% SH and 2% SH will not satisfy the rate group test.

Tom, let's take #1 one step further. Same scenario except the participant in question terminated employment with less than 500 hours and there is a last day requirement. Participant is entitled to the 3% SH, but since they terminated wth less than 500 hours are they still subject to gateway requirements?? Thanks.

[Tom Poje]

my understanding of your situation is the following:

Regs say if you get a nonelective, any nonelective you are eligible for the gateway.

the plan in question has the following:

1. non-elective (no eligiblity becasue its safe harbor)

2. non elective - 500 hour rule / last day

since the ee in question received #1, then they are eligible for the gateway.

furthermore, when testing, you use the minimum eligiblity requirements, so the individual is also included in the rate group test as well.

[buckaroo]

Tom,

Getting back to your first point. I have always been under the impression that if you had a person who rec'd the 3% SHNEC and did not receive the NEC (last day/100 hrs), they had to be provided with an additional contribution to satisfy the gateway. That being said, I thought that a person in this situation was provided with an additional NEC of .334% to satisfy the dateway. Do you agree?

[Tom Poje]

yes, I agree. if you have received any type of nonelective, you are eligibile for the gateway.