Strange demographics

[Penpack]

Have a plan, each employee in their own group ... NHCE employees receiving from 3% of comp to 15% of comp (only one employee receiving 15%)

There are 5 HCES and only two are receiving contributions ... one at 3% and one at 15%.

Can I bypass the gateway test by testing the average of the contribution percentages? Do I have to use broadly available allocation rates? If using broadly, can I count the HCEs that are getting nothing? For example, if I average the HCE group (including HCEs) getting nothing, it is a 3.60% average. If I average the NHCE group (and also include those getting nothing because they were not employed on the last day of the plan year), the average is 3.92%.

From what I read about broadly available allocation rates you count only those getting a contribution, my HCE group would be 50% (only 1 of the 2 who are getting a contribution is getting 15%), but for my NHCE group is 1 out of 22 getting the 15% for 4.55%. My NHCE concentration percentage is 84.85% and the midpoint is 27%; I believe this would definitely fail the broadly available allocation rate.

They would pass cross testing; but fail the gateway because of the group of employees getting only 3%. I need to tell them either to lower the one HCE to 9% or to raise the 3% contributions to 5%. Or let them know it can pass testing another way. Any help greatly appreciated and I hope I have adequately explained everything.

[Lou S.]

With everyone in their own allocation group and presumably a pick and choose formula I don't really see how you get around the gateway.

[Penpack]

Does the gateway apply if I am not testing using EBARS?

[Tom Poje]

if the plan is tested on an allocation basis then the gateway rules do not apply.

According to the LRM from a few years ago, the plan document is supposed to specify which gateway is to be used, one is not to be able to use the broadly available method one year and another gateway method in a different year.
from the LRM:
(Note to reviewer: There are other gateways that may be used in order for a defined contribution plan to cross-test using equivalent benefits under §1.401(a)(4)-8(b). The plan may provide for a different gateway other than the minimum allocation gateway (for instance, the broadly available allocation rate requirement of Regulations § 1.401(a)(4)-
8(b)(1)(iii) or the gradual age or service based allocation rate requirement of § 1.401(a)(4)-8(b)(1)(iv)); however, sample language for other gateways is not provided herein. If a sponsor wishes to use other gateways, it is important to ensure that the benefits provided under the plan remain definitely determinable. In order for plan benefits to
remain definitely determinable, the plan document should specify which gateway is used. The plan document could allow adopting employers to elect between different gateways, but in order to provide definitely determinable benefits it is not sufficient for the plan document merely to specify that one of the gateway requirements will be satisfied.)

[Penpack]

This plan has what I think is another problem. It is a controlled group (2 entities) and the plan is a fiscal year and the main plan sponsor operates their business on this same fiscal year. The other entity participating in the plan is on a corporate calendar year and uses calendar year entry dates and calendar year compensation. Kind of like operating two plans within one plan. The document does not specify special entry dates other than first day of first plan year and 6 months after the date on which he satisfied such requirements and does not specify any of this operationally This plan is not top heavy and the company is not really trying to majorly benefit its HCEs. Makes this a shame because this plan is mainly for the employees. I think this type of plan design could work if the plan document is correct. Anyone ever have any plan design like this? And this is a small plan, employee wise.