Prevailing Wage and SH Match, who gets the Gateway?

[Towanda]

Plan is not Top Heavy and probably never will be.

401(k) w/ Safe Harbor Match - immediate eligibility

Cross Tested Profit Sharing - 1 YOS, 1,000 hours, Last Day rule, everyone in their own group. Business owners use the Profit Sharing to maximize their benefit at the end of the year. Employer wants to keep Profit Sharing contributions to an absolute minimum, excluding as many employees as possible.

Prevailing Wage - may be used to offset any required SH Match, if applicable.

Who gets the Gateway?

Employee 1: Made no 401(k) deferrals. Got no Prevailing Wage. Met 1 YOS requirement in a prior year. Worked 1,000 hours and was employed on the last day of current year.

Employee 2: Deferred 5%. Got a Prevailing Wage contribution that represented 4% of compensation.

Employee 3: Made no 401(k) deferrals. Got a Prevailing Wage contribution that represented 1% of compensation.

Employee 4: Terminated prior to the end of the year. Didn't defer. Got a Prevailing Wage contribution representing 4% of compensation.

Where the Gateway is concerned, do I only care about employees who received the Prevailing Wage contribution, or does an employee qualify for the Gateway simply by virtue of having provided one year of service and being employed on the last day?

Thanks!

[Belgarath]

Gateway only has to be provided to anyone who is "benefiting" under 1.410(b)-3. In this case, see (a)(1). So just because someone has satisfied the eligibility requirements, if they receive no employer contributions/forfeitures, they don't receive gateway.

[TPApril]

Towanda - did you conclude that anyone who received Prevailing Wage contributions must receive the minimum gateway ( p/w contributions do not reach the min gateway threshold)?

[Towanda]

TPApril - According to TAG, any NHCE who is entitled to an employer nonelective contribution (which includes the Prevailing Wage contribution) must get the Gateway Minimum. However, if the plan separately tests the otherwise excludable group, those participants do not need to get the Gateway.

[Kevin C]

Prevailing Wage - may be used to offset any required SH Match, if applicable.

Are you saying the SH Match is offset (reduced) by the amount of their Prevailing Wage Contribution? or the other way around? I don't work with Prevailing Wage plans, but your comment makes me curious.

[Towanda]

Kevin C: In this particular plan, the Prevailing Wage serves as both an offset and a QNEC. It can therefore offset a Safe Harbor Match. These are elections in the Adoption Agreement.

[Kevin C]

Interesting. It turns out our VS document allows the same option. I never noticed it before. The Base Document says:

... If the Prevailing Wage Contribution is used to offset a Safe Harbor Employer Contribution or a Safe Harbor Matching Contribution, the Prevailing Wage Contribution will be treated as satisfying the requirements for a Safe Harbor Contribution as set forth in Section 6.04. Thus, any Prevailing Wage Contributions that are used to offset Safe Harbor Contributions will always be 100% vested and will be subject to the distribution restrictions described in Section 6.04(a)(3). The Plan will not fail to qualify as a Safe Harbor 401(k) Plan solely because Prevailing Wage Contributions are used to offset the Safe Harbor Employer or Safe Harbor Matching Contributions under the Plan.

[Towanda]

Handy dandy feature, particularly in this plan. Their Prevailing Wage contributions are enviably large Add to that, the QNEC feature makes them relatively untouchable in an employee's working years, so these participants are genuinely building toward retirement.

[TPApril]

So ultimately, anyone who received either a safe harbor match or prevailing wage contributions, you made sure that, after summing up the s/h match and p/w contributions, they received up to 5% towards meeting the gateway minimum? If they were already at 5%, they did not receive anything, and thus your owners were able to contribute minimally to non-owners.

[Towanda]

That is correct. It was a joy to calculate