Gateway and 401(a)(4) in a Control Group situation

[Alex Daisy]

There are 5 members of a control group, and only 2 out of the 5 companies give a Profit Sharing contribution. The formula is 2% of Compensation.

Assuming that the control group passes the Ratio Percentage test, does the Gateway test and 401(a)(4) still apply?

Any guidance is greatly appreciated.

Alex

[John Feldt ERPA CPC QPA]

Look at Treasury Regulation 1.401(a)(4)-2(b)(2)(i).

Is the allocation uniform?

[Alex Daisy]

Look at Treasury Regulation 1.401(a)(4)-2(b)(2)(i).

Is the allocation uniform?

The PS percentage given to 2 out of the 5 members of the control group is uniformed at 2 percent

The other 3 out of 5 controls groups get zero Profit Sharing

[John Feldt ERPA CPC QPA]

Are all of the employers of the controlled group actually participating employers in the plan?

If it's a non-standardized or volume submitter document, each employer would have to execute a participation agreement, regardless of being part of a controlled group.

Suppose only 2 employers actually executed a participation agreement, adopting the plan for their employees. Also suppose the plan does not automatically make all employers of a controlled group into participating employers in the plan. If coverage passes when just these 2 employers are covered by the plan, then for 401(a)(4) you basically ignore the employees of those other employers who are not participating employers in the plan.

edit: pesky typos

[Alex Daisy]

Are all of the employers of the controlled group actually participating employers in the plan?

If it's a non-standardized or volume submitter document, each employer would have to execute a participation agreement, regardless of being part of a controlled group.

Suppose only 2 employers actually executed a participation agreement, adopting the plan for their employees. Also suppose the plan does not automatically make all employers of a controlled group into participating employers in the plan. If coverage passes when just these 2 employers are covered by the plan, then for 401(a)(4) you basically ignore the employees of those other employers who are not participating employers in the plan.

edit: pesky typos

Can you define participating employers in the plan?

[Tom Poje]

if you pass ratio % test, then I don't see how it's possible to fail testing if you test on an allocation basis. everyone who received anything received 2%, so the numbers should be the same as the ratio % test.

and there is no gateway when testing on an allocation basis.

[K2retire]

Are all of the employers of the controlled group actually participating employers in the plan?

If it's a non-standardized or volume submitter document, each employer would have to execute a participation agreement, regardless of being part of a controlled group.

Suppose only 2 employers actually executed a participation agreement, adopting the plan for their employees. Also suppose the plan does not automatically make all employers of a controlled group into participating employers in the plan. If coverage passes when just these 2 employers are covered by the plan, then for 401(a)(4) you basically ignore the employees of those other employers who are not participating employers in the plan.

edit: pesky typos

Can you define participating employers in the plan?

If it's a non-standardized or volume submitter document, each employer would have to execute a participation agreement, regardless of being part of a controlled group. Some document providers call it a joinder agreement.