Minimum Gateway Required

[Logan401]

If a plan has the same 1 month of service eligibility requirements for profit sharing as it does for deferrals, must the NHCEs all receive a PS minimum gateway allocation in a cross tested plan if they satisfied the one month wait?

Can you disaggregate otherwise excludables in this case? So, those that did not meet the statutory one year wait can actually receive $0.00 allocation?

I was under the impression that this would apply only if there was a separate one year wait on the PS component.

I would like clarification on this.

[Tom Poje]

I would phrase it this way.

if you cross test then before you test for nondiscrimination you have to pass through the gateway.

if you test a DC plan on an allocation basis, there are no gateway rules in the regs, so no gateway needed.

so if you have a 1 month wait, you could slit the plan into 2 parts. the otherwise excludables probably have no HCEs, so you could test this group on an allocation basis, and thus no gateway needed

[Logan401]

Thanks Tom. If in the event the participants received a nonelective allocation such as a SHNEC, the participants would then be required to receive the minimum gateway since they met the eligibility requirements for profit sharing. 

However, if the profit sharing had a one year waiting period, and deferrals and Safe harbor were one month, participants who have not met the eligibility for profit sharing would not need to receive the minimum gateway even though they receive a SHNEC allocation. 

This is the way I understand how the gateway works.

[CuseFan]

On 3/2/2019 at 11:05 AM, Logan401 said:

If in the event the participants received a nonelective allocation such as a SHNEC, the participants would then be required to receive the minimum gateway since they met the eligibility requirements for profit sharing. 

They would if they were being cross-tested. As Tom noted - you test the OEs separately on an allocation basis, so that group does not need the gateway.

[Logan401]

Using the original post example I made, if the profit share eligibility is 1 month of service, and employees are eligible but excludable, can the NHCEs receive 1% if some of the HCEs received 4%?

[Tom Poje]

if you test all NHCEs together, then they have to receive , at the minimum 1/3 the rate of the HCE or 1.33333%

if you test otherwise excludables separately then they could be tested on an allocation basis and no gateway. I guess for that matter if you test on accrual basis they would need 1/3 the rate of the HCEs, and since there are no HCEs in the otherwise excludable no gateway, I never tried that to see what the software we use does....

 

[cjdwyer1]

I agree with Tom.  You split the plan into 2 pieces.  The statutory employees and the otherwise excludible.  Each piece needs to pass 401(a)(4) as if it were a separate plan.  i.e. the Statutory pieces only includes statutory employees in its testing and the otherwise excludible piece only includes the OWE in its testing.

[Logan401]

I have an additional question about this topic. This new client had a prior plan that had 6 different allocation groups. The 6th allocation group contained employees hired after a certain date, and are to be provided with a $0.00 allocation. Most of the 6th allocation group participants fall into the otherwise excludable category, and others do not. 

Is it possible to give a $0.00 to those who are not excludable in the 6th allocation group, as long as it passes the 4101(b) coverage test? 

[Kevin C]

2 hours ago, Logan401 said:

I have an additional question about this topic. This new client had a prior plan that had 6 different allocation groups. The 6th allocation group contained employees hired after a certain date, and are to be provided with a $0.00 allocation. Most of the 6th allocation group participants fall into the otherwise excludable category, and others do not. 

Is it possible to give a $0.00 to those who are not excludable in the 6th allocation group, as long as it passes the 410(b) coverage test? 

I think we need more details before anyone can answer.  What does the document say?  What effect does the provision have?  Under 1.410(a)-3(e)(1), this provision could be treated as imposing a service requirement.  However, 1.410(a)-3(e)(2) example 6 says a plan can be frozen so that there are no new entrants without violating the age and service rules. 

[Mike Preston]

3 hours ago, Logan401 said:

Is it possible to give a $0.00 to those who are not excludable in the 6th allocation group, as long as it passes the 4101(b) coverage test? 

Yes, as long as the ABT is  not needed to satisfy 410(b).

[Kevin C]

Mike, would you see a problem with it if the "certain date" was x years before the valuation date?  I'm thinking of something like group 6 is those hired within 4 years of the valuation date. 

[Mike Preston]

Doesn't sound like the same thing to me. A fixed date is the same as a freeze. Your's is a not well disguised 410a violation. 

[Kevin C]

Quote

The 6th allocation group contained employees hired after a certain date, and are to be provided with a $0.00 allocation.

I can see this describing either.  It would be nice to see the document language.  It also seems odd to use the allocation group definition to implement a freeze.