Plan has different entry dates for sources

[BG5150]

I have a plan that has 1 year of service, date-of-event entry dates for deferral & Safe Harbor. For Profit Sharing it is 1 YOS and semi-annual entry date.

Compensation used for each source is that earned while a participant in that source. So, I will be having different compensations for SH and PS.

My question is, which comp do I use in my gateway and average benefit tests?

Say, for example person makes $60,000 in the year. She enters the plan for SH on 4/1, and makes $45,000 from then, and $30,000 after 7/1, when she was eligible for the PS. Her SH will be 1,350 and her PS will be 450 (gateway is 4.5%). But when I run my tests, what comp should be in there? Her 401(a) allocation % would be 4% using the 4/1 comp, and 6% using the 7/1 comp.

[J Simmons]

Here's an off the cuff answer.

I think your gateway should, on top of the $1,350 safe harbor, should be $675, to make it 4.5% of $45,000. You are running the average benefit test (I take it all of your HCE rates groups are not passing by 70% or better as a ratio percentage). Since the elective deferrals have to be included in the average benefit test, wouldn't you use your 401k compensation for that test? If so, then that would be what I would think the gateway is based on.

[Tom Poje]

when one says 'average benefits test', just what does that mean?

do you mean average benefits percentage test?

its unfortunate the two terms are similar but they are different.

now, to pass coverage, most of the time you pass the ratio percentage test. if that fails, you try to pass using the average benefits test, one part of that is the average benefits percentage test. you are permitted to run that test on an accrual basis without having to provide the gateway. the IRS has made that clear. (You are of course at that point only testing coverage, not nondiscrimination, and the gateway is for nondiscrim.)

and it turns out for nondiscrim if you passed avg ben % test for coverage then you pass it for nondiscrim as well. so the gateway should only be based on whatever comp you are using for your nondicrimination classification test. so the question would be , just what comp are you using for that portion?

Plus the regs say you can use comp from date of entry for purposes of the gateway.

I think I would agree with J Simmons, that you need to use comp from date of entry as of 4/1.

or for me, I would probably calculate the e-bar as sum of the two parts.

I have one e-bar (comp and contrib) for the portion from date of entry of 4/1, and another for the portion from date of entry from 7/1. I don't see anything in the regs that says I can't do that, but who knows when you get into something like what you describe.

[BG5150]

Back to this. Even simpler. Forget about Avg Benefits test, ratio percentage test, what have you.

What about the Gateway test.

Same financials. Req'd gateway is 4.5%. Satisfied with 3% SH and 1.5% PS. $1,350 SH and $450 PS (total $1,800 ER alloc)

With comp of 45,000, ER% is 4%

With Comp of 30,000 ER% is 6%

The first is a failure, the latter is a pass.

Do I have to give her more PS to get her to 4.5% of 45,000, because that was the basis of the SH?