Gateway and Fail Safe Language

[sdix401k]

This is a two part question.

Does the fail safe language in a document cover a situation where the plan has an hours requirement and or EOY provision and in order to pass 401a4 test I need to increase a participants allocation.

My example would be plan is Safe Harbor PS 3% with EOY provision and Employer discretionary. Employee gets 3% and we want to max other people so we need to give another 2% to pass gateway test but since employee terminated he/she would normally not get.

Can I just give additional 2% without any resolution or retroactive amendment or is this not a fail safe language issue. Fail Safe refers to coverage and 410b.

What actions should be taken to give employee additional 2% if it is not covered under fail safe language. Is this something that an 11(g) corrective amendment should be used for?

Thanks in advance

[Lou S.]

There are generally (at least) 2 types of possible fail safe language.

The first is 410(b) fail safe language but it is generally NOT used with a cross tested plan because it requires to you to pass the 70% test. This fail safe is often used with pro-rata allocations in smaller plans that sometimes fail coverage due to last day requirement.

The second is gate-way fail safe language which is designed to bring every employee who receives some employer allocation and additional allocation to bring them up to the minimum gate way regardless of other allocation conditions. Check you document for this one and you may be done.

Otherwise yes this something that an 11(g) amendment can generally used to fix.

[sdix401k]

Thanks Lou.

[Guest KristenE]

Hi Lou,

Do you know which document provider's have put this language into their plan? Thanks. Kristen

[Belgarath]

I haven't seen a pre-approved EGTRRA document that doesn't have appropriate Gateway override/failsafe/whatever you want to call it language. I rather expect it is there if you check carefully, but of course I don't know...

[Guest KristenE]

Belgarath, thanks for the response and good to know. We are using Datair's documents, and they have the 410(b) fail safe language but not the Gateway failsafe language in their current documents. According to them they have not included the Gateway fail safe in the new version that is currently submitted for the next round of restatements. I have heard that FT Williams/Accudraft has the Gateway failsafe, as well as ASC's pre-approved document.

[Lou S.]

We use Corbel and they have the gateway fail safe. I don't really know about other documents.

[Belgarath]

Wow, that's unfortunate. Seems like poor drafting to me. I believe someone on these boards (maybe Qdrophile?) has a technical term for it. As Lou mentioned, you should be able to do an 11g amendment.