Gateway Question for Floor Offset

[AndyH]

Looking for testing options for non-safe harbor floor offset. DB offset by profit sharing that started in the same year.

Questions:

1. Is there anything that prevents the minimum aggregated allocation gateway from being measured using the accrued to date method?

2. If ok and using the accrued to date method, all investment income attributed to employer profit sharing allocations during the measurement period can (but is not required to be) included, right?

p.s. I think the answer to 1 is that it is prohibited, but I am not sure.

[AndyH]

Well, still hoping for comments on this.

The 2011 Gray Book says that the annual method must be used. But I don't find the explanation convincing if each employee is being handled consistently. Opinions?

QUESTION 12

Nondiscrimination: Equivalent Allocation Rate for Cross Testing Gateway

Under the minimum aggregate allocation gateway of §1.401(a)(4)-9(b)(2)(v)(D) for cross-testing an

aggregated DB/DC plan, equivalent allocation rates under the DB plan are added to allocation rates

under the DC plan. Must these allocation rates and equivalent allocation rates be determined on the

annual method? Or can they also be determined on the accrued to date method?

RESPONSE

The annual method must be used. §1.401(a)(4)-9(b)(2)(iv) requires that for purposes of calculating

aggregate DB/DC allocation rates, a consistent approach, including the same measurement period, must

be used for all employees for the plan year. The description of the minimum aggregate allocation

gateway in §1.401(a)(4)-9(b)(2)(v)(D) refers to the definition of the aggregate normal allocation rate. This

is defined in §1.401(a)(4)-9(b)(2)(ii)(A), for the DC plan, by reference to the definition of allocation rate in

§1.401(a)(4)-2©(2), which requires the use of the annual method.

[DMcGovern]

Not familiar with non-safe harbor floor offset plans, but I offer the following:

allocation rate under Section 1.401(a)(4)-2©(2)(i) - "The allocation rate for an employee for a plan year equals the sum of the allocations to the employee's account for the plan year, expressed either as a percentage of plan year compensation or as a dollar amount."

1.401(a)(4)-2©(2)(ii) - "The amounts taken into account in determining allocation rates for a plan year include all employer contributions and forfeitures that are allocated or treated as allocated to the account of an employee under the plan for the plan year, other than amounts described in paragraph ©(2)(iii) of this section."

1.401(a)(4)-2©(2)(iii)- "Allocations of income, expenses, gains, and losses attributable to the balance in an employee's account are not taken into account in determining allocation rates."

and, 1.401(a)(4)-8©(2)(i) - "An employee's equivalent normal and most valuable allocation rates for a plan year are, respectively, the actuarial present value of the increase over the plan year in the benefit that would be taken into account in determining the employee's normal and most valuable accrual rates for the plan year, expressed either as a dollar amount or as a percentage of the employee's plan year compensation."