Permissive Aggregation / Min. Gateway

[KCA]

Situation: Client has two plans (different TPAs)

The plans have the same eligibility requirements (1-yr /age 21) with duel entry dates.

Plan #1 is 401(k) providing 3% NE SH

Pan #2 is cross-tested profit sharing plan that requires 1,000 hours and year-end employment for a contribution.

Both plans pass coverage testing without aggregation but I would like use permissive aggregation for rate group testing so that the 3% NE SH contribution can be utilized when testing the profit sharing contribution.

The profit sharing plan allows for a special gateway contribution to be provided for all Benefiting NHCEs who are not otherwise receiving the minimum gateway. This will be provided to the participants who have terminated employment with over 500 hours. The question is can I exclude the participants who terminated with < 501 hours from receiving the special minimum gateway contribution? If not, are they included in the rate group testing?

[Tom Poje]

for cross testing, the avg ben pct test has to include all contributions of anyone benefiting. if someone could defer they would be included regardless of hours.

for rate group, my feeling is you are reading the document incorrectly. the gateway is provided for anyone who received a nonelective contribution. thus, someone who might have received a top heavy minimum or a safe harbor contribution but is not eligibile for the profit sharing (due to hours, last day, or whatever) gets bumped up to the gateway (and not more).

I don't think I have ever seen language that said "I can provide a gateway for those people who terminated with more than 500 hours if I want to even though they didn't otherwise receive a nonelective.

yes, for purposes of the rate group portion you are allowed to exclude terminees with less than 500 hours

[KCA]

The terminated employees are receiving a 3% SH NE in the 401(k) plan. Because of that, don't I need to provide them with a bump up to the minimum gateway in my plan since I am using permissivie aggregation in the rate group testing?

The document is an ASC DC VS which has the following language: The special gateway contribution will be allocated to all Nonhighly Compensated Benefiting Participants who have not otherwise received the Minimum Gateway Contribution without regard to any allocation conditions otherwise applicable to Employer Contributions under the Plan.

[Tom Poje]

yes, anyone who receives a non electve must receive a gateway (and a 3% safe harbor is a non elctive) doesn't matter how many hours they work or if they terminate.

I believe the language says, after all is said and done, if I have someone who has received a nonelective but hasn't received enough for the gateway , I bump then up to the gateway. (again, that would be for people like you describe....received the safe harbor but due to last day didn't receive any additional contribtuion and therefore fell short of the gateway.

[KCA]

Keeping in mind that these are two separate plans, is it possible to use permissive aggregation in the rate group testing that includes the terminated participants in the testing but with no beneft (-0- EBAR)? In this way, I only include their 3% NE SH contribution in the ABT test but not in rate group testing. That way I won't need to bump them up to the Min. Gateway.

[Tom Poje]

if the plans are tested on an allocation basis there is no gateway, but that usually hurts testing plans with different formulas, but otherwise I know of no way to test on an accrual basis and not provide these people with the gateway.

[KCA]

otherwise I know of no way to test on an accrual basis and not provide these people with the gateway.

As I thought. Thanks for you help.