Compensation used for Minimum Allocation Gateway

[LarryDavid]

Another Gateway question(s):

I have two separate definitions of Plan Compensation (i.e. compensation on which the plan allocation is based) in my Controlled Group:

Plan #1 -- Total pay earned for period of the year in which employee was a participant in the plan (1-year eligibility period)

Plan #2 -- Base pay earned for the entire year (immediate eligibility)

For Testing puposes, I am currently using total pay for the entire year for all participants in the aggregated plan. The plan is failing the minimum allocation gateway test, so as of now I am calculating the required gateway contribution based on total pay for the entire plan year.

My questions are:

1.) Can I base the gateway for Plan #1 on Earned-While-Eligible pay? I assume if I do, then I would also have to use this defintion of compensation in my General Test. Sinc this will only improve results for that test (as it will result in higher accrual rates for a group of all NHCE's), that will not be a problem.

2.) Can I base the gateway for Plan #2 on Base Pay? I'm guessing this is a No, unless I can somehow use Base Pay as my Testing Compensation. Which leads to my third question....

3.) Can I use Base Pay as my Testing Compensation if this definition of pay is deemed non-discriminatory using the compensation percentage test?

4.) If #4 is Yes, does that mean I have to use Base Pay as the Testing Compensation for the entire Aggregated Plan (including Plan #1)?

[Tom Poje]

it doesn't matter what the definition of comp you use for allocation purposes, but for testing purposes it has to be any definition that satisfies 414(s). so the two can be different.

and the gateway must either be 5% of 415 comp (though it could be from date of participation) or 1/3 the allocation rate (based on a definition that satisfies 414(s))

thus conceivably you could use a definition of comp for allocation purposes, but would base the 5% gateway on 415 comp or 1/3 of 414(s) comp.

[LarryDavid]

it doesn't matter what the definition of comp you use for allocation purposes, but for testing purposes it has to be any definition that satisfies 414(s). so the two can be different.

and the gateway must either be 5% of 415 comp (though it could be from date of participation) or 1/3 the allocation rate (based on a definition that satisfies 414(s))

thus conceivably you could use a definition of comp for allocation purposes, but would base the 5% gateway on 415 comp or 1/3 of 414(s) comp.

My gateway is for a DB/DC combo. The highest HCE allocation rate (from DB plan, based on 414(s) comp) is 26%. Therefore all NHCE's must receive either (1) 6% of 415 comp (which can be from DOP where applicable), or (2) 8.667% (1/3 of 26%) of 414(s) comp. Is this correct? I assume option 1 will provide a lower amount for all, but if it doesn't am I allowed to mix and match, i.e. give each NHCE whichever amount is lower (some may be option 1 and others may be option 2)?

[Tom Poje]

for DC plans only the regs

1.401(a)(4)-8(b)(1)(vi)(A) says provide 1/3 alloaction rate

(B) says its deemed satisfied if you provide 5% of 415

under the aggregattion rules

1.401(a)(4)-9(b)(2)(v)(D)(1) says provide 1/3 alloaction rate or if less 5% blah blah blah and the rate for each NHCE must be 'at least'...

I see no requirement it be the same for everyone, though I hadn't thought about it before.

but remember, since the NHCEs could be in different groups, they could end up receiving different amount anyway.

plus, if the plan is top heavy, you might be providing 5% based on full year comp, but since the person might have entered mid year when you look at the gateway they end up receiving a 'larger % of pay' based on the entry comp.

[Guest wildpigwildpig]

what if the plan is safe harbor 3% or safe harbor match, which automatically satisfy top heavy but the compensation for safe harbor allocation is also from entry date instead of 12 month period. is it ok to use compensation from entry date for all allocation and testing purpose?

[PensionPro]

What are you testing?

[Guest wildpigwildpig]

gateway, 401(a) general testing.

[PensionPro]

• once you make a non elective contribution (apart from the SH) you lose your TH exemption
• The TH min is based on 415 comp for entire plan year
• SH contributions may be based on 414(s) comp and may excl pre-participation comp
• gateway 1/3rd is based on 414(s) comp and may excl pre-participation comp
• gateway 5% is based on 415 comp and may excl pre-participation comp
• rate group testing is based on 414(s) comp and may excl pre-participation comp

Also check your plan doc for any additional restrictions.

[tghooper]

Reviving an old thread...

Everything here makes sense.  However, need clarification via example.

HCE data as follows:

* Allocation wages = $240,000.  PS = $36,000 , which is 15% so Min Gateway is 5%

* 415 wages = $280,000, which is 12.86% so Min Gateway is 4.29%.

Plan passes 414(s) comp ratio test.  That means that NHCEs don't need 5% on 415 comp, correct?