gateway testing

[Chippy]

I have a plan that is written as cross tested with everyone in their own group. The company refers to their non-elective contribution as a "Year of Service" contribution, meaning that they allocate it based on years of service as follows: (company allocates)

0 -9 years - 3% of base salary

10 - 19 years - 4% of base salary

20 - 29 years - 5% of base salary

30 and over - 6% of base salary

I believe that the formula that they use should exempt them from gateway, but here may be the problem.

For the basis of the Year of Service contribution they exclude bonus, cell phone and car allowances. The plan document does not exclude anything in the definition of compensation. Comp def says wages within the meaning of 3401 (a) including any amount includable in the gross income under section 125, 402 and so on....

Also in document, Compensation shall include only that compensation which is actually paid to the participant by the company during the Plan Year or such other period used to determine Comp for allocation purposes.

All participants receive the contribution based on the full year comp.

Based on the document, is this allowed to allocate the contribution on this comp?

Can I test gateway, average benefits and general test using the comp used to allocate the contribution?

Would it have to pass the 414s comp test first?

thank you for your help.

[Bird]

If everyone is in their own group then the methodology used to determine contributions is irrelevant. You could base it on shoe size, compensation from May 3 to May 15th, or whatever you want. Ultimately, as far as the plan is concerned, you have determined - outside the parameters of the document - that each participant's contribution is "x" and you test it against an allowable definition of testing comp.

[AndyH]

"you test it against an allowable definition of testing comp"

True. And the definition cited (excluding bonus etc) is not allowable for testing purposes unless it satisifies the 414(s) test, to answer one of the questions.

[Chippy]

If the plan passes the 414s comp test, and it will, can I test on the allocation comp even though the document does not exclude bonuses in the definition of comp? I didn't think I could, but thought I'd ask to be sure.

thanks for you help

[Mike Preston]

Read Bird's response again.