2 year eligibility question

[Earl]

I have a client with DB & DC (3% SH 401k) Plans that are aggregated for coverage and non-discrimination testing.

If I have 2 years for eligibility for the DB and PS Parts, an employee who is 401k & SH eligible gets a 3% of pay SH contribution that also covers TH 3%.

Is that employee raised to the minimum Gateway?

I hope that is enough information to respond if someone has time.  I would have thought this would be discussed but cannot find anything via the Search.

Thank you

[John Feldt ERPA CPC QPA]

Yes, unless they can be excluded under the OEE rule because they are under 21/1. This also assumes this combo is tested on a benefits basis, and none of the gateway exceptions apply: 1) the DB/DC combination being primarily DB in nature under 1.401(a)(4)-9(b)(2)(v)(B), or 2) the DB/DC combo consists of broadly available separate plans under 1.401(a)(4)-9(b)(2)(v)(C) -- neither are very common to see, although the "primarily DB in nature" exception has been useful for me a few times.

Also, just a note that if you are using the option to offset the DC minimum required to satisfy the gateway by the value of the accruals in the DB plan - which is available in general on a person-by-person basis, or as an average under 1.401(a)(4)-9(b)(2)(v)(D)(3) - you can't offset the DC minimum for those that are not receiving any accrual in the DB plan, so they get the full gateway in just the DC plan. It states "a plan is permitted to treat each NHCE who benefits under the defined benefit plan as having an equivalent normal allocation rate equal to the average..."

[Earl]

Thank you very much for taking the time to reply.

Earl

[CuseFan]

Unfortunately, you cannot use the otherwise excludable employees permissive disaggregation and test those people separately and exclude from gateway. 410(a)(1)(B) provides for the 2-year wait and 410(b)(4)(B) provides for the separate testing of otherwise excludables but without regard to paragraph (B) of 410(a)(1). You also can't restructure to avoid gateway either.

[John Feldt ERPA CPC QPA]

CuseFan, can you clarify please? I understand that 1.401(a)(4)-9(c)(4) does not allow a "component" plan to avoid the minimum gateway, as it states the plan is "restructured" - it is not "permissively disaggregated" - so we agree there.

Suppose we have a cross-tested 401(k) profit sharing plan with entry after 3 months of service. The OEE rule of 1.410(b)-6(b)(3) allows the employer to "permissively disaggregate" those under 21/1 into a separate plan. Are you saying that the minimum gateway must be provided to all NHCEs in both the over 21/1 "plan" and the under 21/1 "plan" as well?

[John Feldt ERPA CPC QPA]

CuseFan?

[SoCalActuary]

John, I think you should re-read CuseFan's comment.  You agree with him about the 2 year issue, and he said nothing about the under 21/1 group.

[John Feldt ERPA CPC QPA]

Okay, so nothing to clarify then. np.