401a4 failure

[Jakyasar]

Hi all

Taking over a combo plan for 2019.

Received information on 2018 so that I can check the 2018 test and based on my calculations, does not pass. I have questioned this and waiting for an explanation.

However, if there is a failure on 401a4, is this a self correction and if it is where can I find it? May be late in the day, just cannot find it.

The failure is to provide the minimum gateway. It would have been thru additional profit sharing allocation as DB allocation is set.

If the gateway was provided correctly, 401(a)(4) would have passed with no issues.

Thank you

[Mike Preston]

It is not, so you can't.

[Jakyasar]

Ok, no self correction, how is it corrected then, VCP?

Any other way?

Thank you

 

[Mike Preston]

Yes, VCP. No other way.

[Jakyasar]

Much appreciated and thank you

[C. B. Zeller]

Read the plan document carefully. Chances are that it states that additional profit sharing contributions will be provided as necessary to satisfy the minimum gateway. If this language is there, then you have an operational failure due to failure to follow the plan document, which can be corrected under SCP. 

If the plan document does not contain the gateway language, then you have a demographic failure, which can not be self corrected and must go VCP as Mike stated.

[Mike Preston]

4 hours ago, C. B. Zeller said:

Read the plan document carefully. Chances are that it states that additional profit sharing contributions will be provided as necessary to satisfy the minimum gateway. If this language is there, then you have an operational failure due to failure to follow the plan document, which can be corrected under SCP. 

If the plan document does not contain the gateway language, then you have a demographic failure, which can not be self corrected and must go VCP as Mike stated.

Much more complete response than mine. But, while we are at it..... you are free to re-perform the a4 test for 2018 to satisfy the test.  You aren't locked in by what the prior TPA did or assumed.  So, accrued-to-date, restructuring, otherwise excludables... go to town!

[Jakyasar]

Mike, agree with you but not trusting the balances necessarily for acc-to-date. Will think about the restructuring. No OE option. It a 3 participant plan 2 HCE and 1 NHCE.

C.B. Zeller, is the following the language you are talking about? It is from the DC plan. As I am combining both plans and the gateway is based on combined plan requirements, would I still be able to SCP for 2018?

Thank you both for your comments.

3.10 Minimum Allocation Gateway. If the Employer elects to satisfy the non‐discrimination rules with respect to

contributions or benefits by providing the minimum allocation gateway, each NHCE who (1) is a Participant in

this Plan, (2) receives an allocation of Non‐Elective Contributions and/or QNECs, and (3) is not an Otherwise

Excludable Participant must have an allocation rate not less than the lesser of 5% or one‐third of the allocation

rate of the HCE with the highest allocation rate. An allocation rate is the amount of contribution allocated to an

Employee for a year, expressed as a percentage of Compensation. If the requirements of Regulation

§1.401(a)(4)‐9 apply to the Plan, the gateway will be determined in accordance with Regulation §1.401(a)(4)‐

9(b)(2)(v)(D). Compensation under this paragraph will be limited to amounts a Participant received on or after

his entry date with respect to the Non‐Safe Harbor Non‐Elective Contribution Component of the Plan.

[C. B. Zeller]

Yes, that's it. The regulation referenced there contains rules for aggregating DB and DC plans for testing, including the 7.5% combo gateway. So under the plan document, each participant who received any profit sharing was required to get at least the gateway, and if they didn't then you have an operational failure which can be self-corrected.

[Jakyasar]

Fantastic and really appreciate your time and explanation. To Mike as well.