Failed 414(s) test, runinng cross tested 401(a)(4) GNT

[buckaroo]

I have a plan that uses a modified definition of compensation for the employer contribution. (It excludes bonus, overtime, commissions.) The nonelective contribution is calculated at 4% of modified compensation. When I run the 414(s) compensation ratio test, it fails. At this point, I need to run the 401(a)(4) General Test using a definition of compensation that meets 414(s). I simply use gross compensation. When I run it on an allocation basis, it fails. I then run it on a benefits basis and all of the rate groups pass the ratio test, but the gateway minimum test fails. It fails for 3 NHCE participants (using the gross compensation number) on the 1/3 test. (Obviously, everyone fails the 5% test.)

PLEASE CONFIRM

1) My feeling is that since I am using gross comp as my defined comp for 414(s), I can use the 1/3 of the gross comp to satisfy the gateway.

2) Since there are three NHCEs causing a failure of the gateway minimum test, I can provide an additional contribution to these three employees to satisfy the gateway test. (I will automatically satisfy any 401(a)(4) testing on the additional amount as it is only going to NHCEs.)

3) This will need to be accomplished via an 11g amendment and will also have to provide some additional vested percentage if the employees are 0% vested.

4) I would think that the additional contribution should be a uniform percentage. Therefore, I have calculated the NHCE with the highest additional percentage on the modified compensation (to achieve the gateway min on gross comp) and provided that percentage to each of the three participants. Does this sound reasonable? Or can I provide various percentages in order to simply satisfy the 1/3 gateway minimum contribution (based on gross comp).

Any comments are greatly appreciated.

[BG5150]

Do you have to do an 11g amendment in order to provide a gateway to someone who would not have got it? I thought 11g amendments were used when you were upping someone in order to satisfy the ABT.

[buckaroo]

Do you have to do an 11g amendment in order to provide a gateway to someone who would not have got it? I thought 11g amendments were used when you were upping someone in order to satisfy the ABT.

Yes you do. THe 11g allow you to provide an additional NEC contribution for a variety of correction including statisfying the gateway.

[rcline46]

The document probably does not have the cross testing language (because it was not a cross tested plan) and an 11(g) is necessary (hope it is not a 12/31 year end, cuz you are late). If it were a cross tested plan the gateway language would cover you.

[buckaroo]

Thanks for the info. It is not a 12/31 PYE. It is a 3/31. For the PYE 3/31/2009, the document is a GUST prototype. It does not have any gateway information in it. My understanding is that I can test for 401(a)(4) using a cross tested methodology. If the testing is passed except for the gateway, an 11g amendment can be drafted and executed up to 9 1/2 months after the end of the plan year. Therefore, the amendment can be done to include three named individuals with a specific contribution amount for each and an increase to their vested percentages (if necessary) to ensure that the correction is significant. Agree? Disagree?

Additionally, will processing the 11g amendment take the plan out of prototype status? (There is some disagreement here.)

Finally, for my own education, regarding the timing of the amendment. My recollection is that if the 9 1/2 months has passed, then it would be an issue under EPCRS. Under EPCRS, the correction would be to do a VCP filing and draft and execute the amendment. So, the difference would be the VCP filing. Is this correct? Are there any other issues to be aware of? I am sure that I am over simplifing it, but wanted to get details on how this works.

Any comments/thoughts are greatly appreciated.

[rcline46]

It is my belief that the -11(g) amendment will take the plan out of prototype status, but this will be 'fixed' with the EGTRRA restatement. I am also assuming, cuz I don't remember if discussed, that the plan does not have the 'fail safe' language in it to fix the more expensive way.

You can name the three with the specific amounts needed. I would word the amendment to identify it as being done to satisfy gateway.

[BG5150]

You can name the three with the specific amounts needed. I would word the amendment to identify it as being done to satisfy gateway.

Why would that be important if the document doesn't have gateway language?

[rcline46]

Just to match it to testing requirements and nothing else.

[AndyH]

PLEASE CONFIRM

4) I would think that the additional contribution should be a uniform percentage. Therefore, I have calculated the NHCE with the highest additional percentage on the modified compensation (to achieve the gateway min on gross comp) and provided that percentage to each of the three participants. Does this sound reasonable? Or can I provide various percentages in order to simply satisfy the 1/3 gateway minimum contribution (based on gross comp).

Any comments are greatly appreciated.

I don't think it needs to be a uniform percentage. It could certainly be a flat dollar amount or different amounts or different percentages. You could also define it more efficiently as "the amount needed to elevate each (of the three) participant into a passing rate group" or something like that.

I'd prefer that it be spelled out but we've done many as described.