SH401k w bifurcated elig

[cheersmate]

A 401k Safe Harbor Plan has the following provisions:

- 6 mos elig for 401k deferral contributions (no min age)

- 12 mos/1000 hrs (no min age) for employer SH (3%), discretionary PS (cross tested)

- dual entry dates, 1/1 and 7/1

2015 Plan Year, there are 2 employees newly eligible as of 7/1:

- 1 HCE (spouse of owner)

- 1 NHCE

Question 1

Assuming the Plan is NOT TH for the 2015 plan year, the 2 newly eligible participants will not receive SHNEC or PS but if their deferral %s pass the ADP test (testing only them), is it correct that the Plan will not fail any other testing (e.g. Gateway mins)?

If this is incorrect, can the Plan be amended to correct via accelerating eligibility for SH and PS to same 6 mos requirement and not lose its Safe Harbor status for the year?

Question 2

Assuming the Plan IS TH for the 2015 plan year and all other statements above apply... Assuming ADP test for 2 newly eligible passes, can the employer contribute 3% TH for these 2 newly eligible (assuming they are still employed on the last day of PY) without tripping the Gateway testing (assuming the GW minimum is at least 5%)?

If this is incorrect, can the Plan be amended to correct via accelerating eligibility for SH and PS to same 6 mos requirement and not lose its Safe Harbor status for the year?

Thank you for your assistance.

[Tom Poje]

since you have a plan with 6 months deferral eligibility but 1 year for safe harbor it is a given that the plan is tested splitting the groups - statutory includable and otherwise excludable

the statutory includable is safe harbor so no ADP test.

the otherwise excludable most likely has no HCEs so that ADP test passes with a free ride as well.

as for your question regarding gateway minimum, again, you would probably test the a(4) portion as statutory includable and otherwise excludables.

since there would be no HCEs in the otherwise excludable group, then there would really be no test so no gateway needed.

such a plan design (different eligibility) does not have the "get out of top heavy for free card" so if the plan is top heavy, then yes they would get the 3%.

If the key employee is not receiving and nonelective contribution then the question of gateway is unimportant anyway, no matter even if the NHCEs were not otherwise excludable.

[cheersmate]

as for your question regarding gateway minimum, again, you would probably test the a(4) portion as statutory includable and otherwise excludables.

since there would be no HCEs in the otherwise excludable group, then there would really be no test so no gateway needed.

such a plan design (different eligibility) does not have the "get out of top heavy for free card" so if the plan is top heavy, then yes they would get the 3%.

If the key employee is not receiving and nonelective contribution then the question of gateway is unimportant anyway, no matter even if the NHCEs were not otherwise excludable.

For the year in question, there happens to be an HCE and a NHCE eligible 7/1 for 401k only.

So the HCE deferrals were throttled... pass ADP

The question is if by giving these 2 otherwise excludables a THM allocation would "trigger" gateway minimum requirements for these 2 otherwise excludables for purposes of a4, with the minimum being the amount necessary for the includables (e.g. 5%). I did not believe this to be the case but a recent article I read lead me to believe I was wrong. Would you please confirm.

[Tom Poje]

unclear in the context being asked.

did the HCE in question (spouse) receive a nonelective contribution, and if so what %.

my understanding, if you were testing otherwise excludables separately then for test 1 (statutory includable) you have the gateway (if needed) for all those in that test.

and when testing the otherwise excludables you have the gateway (if needed) but only pertaining to the rate of the HCE in that test.

[cheersmate]

The only ER allocation the NHCE and HCE in the "otherwise excludables" will receive is the 3% THM.

[SoCalActuary]

Does spouse qualify as a key employee? I would normally think so. So that person is not required to receive a THM.