minimum gateway

[jpod]

DC Plan has a 1-year service requirement for elective deferrals, and a 2-year service requirement for fully vested employer contributions. Plan is top heavy, so N-Ks receive the TH minimum if they have satisfied the 1-year service requirement, even if they haven't satisfied the normal 2-year service requirement for employer contributions. Does the minimum gateway have to be made for N-Ks who receive a TH minimum but haven't satisfied the 2-year service requirement for regular employer contributions? Yes, they "benefit" under the Plan by virtue of the TH requirements, but it doesn't seem logical to require that they receive more than the TH minimum.

[J Simmons]

DC Plan has a 1-year service requirement for elective deferrals, and a 2-year service requirement for fully vested employer contributions. Plan is top heavy, so N-Ks receive the TH minimum if they have satisfied the 1-year service requirement, even if they haven't satisfied the normal 2-year service requirement for employer contributions. Does the minimum gateway have to be made for N-Ks who receive a TH minimum but haven't satisfied the 2-year service requirement for regular employer contributions? Yes, they "benefit" under the Plan by virtue of the TH requirements, but it doesn't seem logical to require that they receive more than the TH minimum.

Logical or not, the answer is 'yes.' The minimum gateway is required for all employees that receive any company contribution.

[jpod]

Thanks, I've heard that, but I am having difficulty linking that answer up to the regs. Do you know off the cuff where (at least approximately) I would find the basis for that answer in the regs?

[J Simmons]

Thanks, I've heard that, but I am having difficulty linking that answer up to the regs. Do you know off the cuff where (at least approximately) I would find the basis for that answer in the regs?

Tripodi explains it thusly,

Caution: different accrual and/or eligibility requirements may expand group of NHCs who must receive the gateway contribution. If the employer contributes both safe harbor nonelective contributions and “regular” nonelective contributions to a safe harbor 401(k) plan, the gateway contribution must be provided to all NHCs who benefit under the plan. The “plan” consists of the total amount of nonelective contributions (safe harbor and “regular”) made by the employer to the safe harbor 401(k) plan. See Treas. Reg. §1.401(a)(4)-1(b)(2)(ii) (which is made applicable to the safe harbor nonelective contributions by reason of Section VIII.B. of Notice 98-52) and Treas. Reg. §1.401(a)(4)-1©(4)(i).

EOB, Chapter 9, § IV.B.4.d.2)

[jpod]

But, can't you bifurcate the "plan" into two plans: one for those with 1 but less than 2 YOS and another for those with 2 or more? HCEs and NHCEs with less than 2 YOS would get the same 3% TH minimum (except HCE Keys, who would get 0%).

[J Simmons]

But, can't you bifurcate the "plan" into two plans: one for those with 1 but less than 2 YOS and another for those with 2 or more? HCEs and NHCEs with less than 2 YOS would get the same 3% TH minimum (except HCE Keys, who would get 0%).

The gateway is not itself a nondiscrimination test, but a prerequisite in order to be able to show nondiscrimination through cross-testing.

[Tom Poje]

ah grasshopper, as I recall, you were absent the day the teacher went over Code section 410(a)(4)(B) which talks about Requirements may be met separartely with respect to excluded group.

If employees not meeting the minimum age or service requirements of subsection (a)(1) without regrad to subparagraph B....

subparagraph B is the one that allows a 2 year wait for certain contributions.

(I fell asleep, but was awakened by the crack of a ruler over the head - thats how I knew you were absent, you didn't warn me it was about to happen)

[J Simmons]

ah grasshopper, as I recall, you were absent the day the teacher went over Code section 410(a)(4)(B) which talks about Requirements may be met separartely with respect to excluded group.

If employees not meeting the minimum age or service requirements of subsection (a)(1) without regrad to subparagraph B....

subparagraph B is the one that allows a 2 year wait for certain contributions.

(I fell asleep, but was awakened by the crack of a ruler over the head - thats how I knew you were absent, you didn't warn me it was about to happen)

master, what's a regrad and why do you bold it?

Who you calling grasshopper?

What's your conclusion to the OP?

[jpod]

I think he's saying my idea is toast and must make a 5% TH contribution. However, for someone who's 1-year entry date is July 1 in a calendar year plan year and entitled to a TH contribution, can the gateway be the LESSER OF -

(a) 3% of full year compensation, or (b) 5% of 7/1-12/31 compensation?

[J Simmons]

I think he's saying my idea is toast and must make a 5% TH contribution. However, for someone who's 1-year entry date is July 1 in a calendar year plan year and entitled to a TH contribution, can the gateway be the LESSER OF -

(a) 3% of full year compensation, or (b) 5% of 7/1-12/31 compensation?

YES!

[Tom Poje]

J Simmons -

it should have said 'regard', but somewhere over the last few months I have lost my ability to type. I am constantly reversing letter like that. (hmm, maybe thats the problem - never learned how to type - I only type with 2 fingers, and the right side seems to be maybe half a step ahead of the left side at the present time, if that makes any sense.) It's kind of aggrevating.

I think in the great scheme of things I am a praying mantis. I was referring to jpod as the grasshopper, because he was asking about splitting the otherwise excludables into 2 years or more and 2 years or less, and I was merely pointing out in the Code where this is found, which someone taught me many moons ago.

it was in bold because, despite the fact the code and regs say you can test otherwise excludables separately, it does not apply to the 2 year eligibility rule

[J Simmons]

J Simmons -

it should have said 'regard', but somewhere over the last few months I have lost my ability to type. I am constantly reversing letter like that. (hmm, maybe thats the problem - never learned how to type - I only type with 2 fingers, and the right side seems to be maybe half a step ahead of the left side at the present time, if that makes any sense.) It's kind of aggrevating.

I think in the great scheme of things I am a praying mantis. I was referring to jpod as the grasshopper, because he was asking about splitting the otherwise excludables into 2 years or more and 2 years or less, and I was merely pointing out in the Code where this is found, which someone taught me many moons ago.

it was in bold because, despite the fact the code and regs say you can test otherwise excludables separately, it does not apply to the 2 year eligibility rule

Tom-

Thanks for the explanation. I suppose I should learn the fine art of using smiling faces to connote when I am being a bit sarcastic.

[BG5150]

I think he's saying my idea is toast and must make a 5% TH contribution. However, for someone who's 1-year entry date is July 1 in a calendar year plan year and entitled to a TH contribution, can the gateway be the LESSER OF -

(a) 3% of full year compensation, or (b) 5% of 7/1-12/31 compensation?

I would say, perhaps the gateway was satisfied by using the lesser of the two, but if the 5% figure was lower and you only gave that, then the TH would not be satisfied.

[Tom Poje]

I'd say the following

when cross testing, you are allowed to split the testing into 2 groups, those with more than one year of service and those with less than 1 year of service.

since you rarely have an HCE in the group with less than 1 year of service, there is no need to cross that group, so no gateway is need, only the top heavy.

[jpod]

I think he's saying my idea is toast and must make a 5% TH contribution. However, for someone who's 1-year entry date is July 1 in a calendar year plan year and entitled to a TH contribution, can the gateway be the LESSER OF -

(a) 3% of full year compensation, or (b) 5% of 7/1-12/31 compensation?

I would say, perhaps the gateway was satisfied by using the lesser of the two, but if the 5% figure was lower and you only gave that, then the TH would not be satisfied.

Good catch. The required contribution is the GREATER OF (a) or (b).

[Richard Anderson]

But, can't you bifurcate the "plan" into two plans: one for those with 1 but less than 2 YOS and another for those with 2 or more? HCEs and NHCEs with less than 2 YOS would get the same 3% TH minimum (except HCE Keys, who would get 0%).

The gateway is not itself a nondiscrimination test, but a prerequisite in order to be able to show nondiscrimination through cross-testing.

If a plan uses general testing on a contributions basis (not cross testing), is the gateway a requirement?

[PensionPro]

No.