SHNEC and Additional ER Contribution

[justatester]

Plan makes a 3% SHNEC contribution-all ees receive contribution

Plan makes a 4% ER PS contribution-this contribution has a last day/hours requirement.  Not all EEs receive.

For 410(b), it is my understanding that all ER contributions must be tested together.  Since all ees are not receiving the same allocation rate (due to last day/hours), this triggers the need for a 401(a)(4) rate group test.  In reading through the EOB, it seems that if you can pass 410(b) on each source separately, then you are ok.    What is the best approach to solving this?  You need to run the 410b on an aggregated basis, but then run separately to satisfy the rate group?  Or do you aggregate and go to rate group testing?

How do these rules come into plan when you have a ER PS allocation and a Top Heavy minimum? 

Example:  ER has 1000 hours/ last day.  Employee is employed on last day, but does not met hours.  This EE receives a Top Heavy min contribution of 3%, but not the ER allocation is 4%.  Does the same logic apply to this situation as it does to the SHNEC/ER allocation?

[C. B. Zeller]

Whatever aggregation/disaggregation is done for coverage, must also be done for nondiscrimination. You have to aggregate the SHNEC and the discretionary PS for coverage; you have to do the same for 401(a)(4).

It sounds like some employees are getting a 3% allocation rate and others are getting 7%. If 100% of the HCEs and at least 70% of the NHCEs are getting the 7%, then the general test is satisfied on an allocation rate basis and you are done. If not, then you can try other testing methods, such as cross-testing. If the highest HCE allocation rate is 7% then 3% is plenty for the gateway.

If you are unable to pass testing, then an -11(g) corrective amendment would be needed to increase contributions for enough NHCEs to pass testing.

I am not sure why top heavy would be an issue if every employee is getting at least 3% by way of the SHNEC.

[justatester]

Sorry for the confusion.  For my top heavy question,  the plan does not have a SHNEC, just a 4% PS that has an hours/last day.  So you have participants who only receive the top heavy 3% and not the PS.

[C. B. Zeller]

Then, same thing, except replace 7% with 4% from my previous reply. 

[Kevin C]

On ‎4‎/‎22‎/‎2020 at 9:39 AM, justatester said:

Sorry for the confusion.  For my top heavy question,  the plan does not have a SHNEC, just a 4% PS that has an hours/last day.  So you have participants who only receive the top heavy 3% and not the PS.

If the PS allocation formula is a 401(a)(4) safe harbor, you may not need to general test.  There is an exception in the reqs that may apply.

Quote

1.401(a)(4)-2(b)(4)(vi)(D)(3) Top-heavy formulas. In the case of a plan that provides the greater of the allocations under two or more formulas, one of which is a top-heavy formula, the top-heavy formula does not fail to be available on the same terms to all employees merely because it is available solely to all non-key employees on the same terms as all the other formulas under the plan. Furthermore, the top-heavy formula does not fail to be available on the same terms as the other formulas under the plan merely because it is conditioned on the plan's being top-heavy within the meaning of section 416(g). Finally, the top-heavy formula does not fail to be available on the same terms as the other formulas under the plan merely because it is available to all employees described in §1.416-1, Q&A M-10 (i.e., all non-key employees who have not separated from service as of the last day of the plan year). The preceding sentence does not apply, however, unless the plan would satisfy section 410(b) if all employees who are benefiting under the plan solely as a result of receiving allocations under the top-heavy formula were treated as not currently benefiting under the plan. For purposes of this paragraph (b)(4)(vi)(D)(3), a top-heavy formula is a formula that provides the minimum benefit described in section 416(c)(2) (taking into account, if applicable, the modification in section 416(h)(2)(A)(ii)(II)).