Non Safe Harbor Plan and Gateway

[emmetttrudy]

Plan sponsor has a DB and DC plan. The DC plan is not safe harbor and they routinely fail the ADP test, and correct by making a QNEC. Can the QNEC be used to satisfy part of the Gateway required for the DB/DC testing? For example, if the Gateway is 7.5% and the QNEC is 3%, does the QNEC of 3% plus another 4% profit sharing contribution satisfy the Gateway?

[Tom Poje]

1.401(k)-2(a)(6)(ii) requires a plan pass nondiscrim testing both with and without a QNEC, so not sure if that's a great strategy anyway, because you have to run testing twice.

1.401(k)-3(h)(2) clearly indicates SHNECS are an exception to this rule and can be taken into account to satisfy 401(a)(4), and don't have to follow the rules pertaining to QNECs.

The IRS conclusion is that QNECs can not satisfy the gateway (#6 Q and A 2006 ASPPA Annual conference) while such Q and As might not represent an actual position of the Treasury, this would seem to make sense given the above.

and you can't get around it by saying you'll restructure, because 1.401(a)(4)-9©(3)(ii) says that's a no-no.

[AndyH]

Tom, good answer.

And nice, ahem, outfit. It looks well tailored. Did you buy, borrow, or rent that (It may affect how some accept your answers over here on the dark side)?

[GMK]

As we used to say at Chrysler:

You make that Plymouth rock, Tom!

(oh, dear. no one will know what that means after Thursday when you change your avatar.

And also, I never actually worked for Chrysler.

It's all a lie, except that you and your answers rock, Tom.)

[Tom Poje]

dang it Andy, I've had that outfit from at least sometime in the 1600s - they made clothes to last back then.

(and yes, in another few weeks when I change the picure this message will make no sense)

[AndyH]

But mine probably still will!