Prevailing Wage + 401(a)

[#toomanyrules]

Plan A is a Safe Harbor Match, calendar year-end Plan that provides for prevailing wage contributions and a cross-tested profit sharing contribution. Allocation conditions for profit sharing are last day and 1,000 hours. Document allows prevailing wage contributions to offset all Employer Contributions.

I'm (somewhat) familiar with using Prevailing Wage contributions as QNEC in the ADP test. However, as the Plan is Safe Harbor, I don't need the prevailing wage to count as a QNEC for ADP testing. 

I am struggling with how to approach the Prevailing Wage contributions for cross-testing. Its my understanding these contribution are treated as Non-Elective Contributions for testing purposes. Thus, logically, I should include them for gateway and 401(a) cross-testing. This is a takeover plan and based on the 2020 Valuation Reports, I can see the prior TPA included the Prevailing Wage in gateway and 401(a).

Is this the general consensus in how to test these prevailing wage contributions?

If I were using the prevailing wage in ADP as a QNEC to help pass ADP testing, I think there would be some additional considerations/limitations in whether and how to use those prevailing wage contributions in cross-testing. But, since I am not doing so, is it as straight-forward as just adding them as if they were profit sharing contributions?

 

 

 

 

 

[Bri]

I think you're on it, except you wouldn't count the D-B money being applied towards the matching formula in the profit sharing rate group tests.  (Just the average benefits percentage test)

I don't recall when the employer has to declare how much counts as which type between non-elective and match, though.  Could depend on the allocation date as defined in the document.

[C. B. Zeller]

I agree, but be careful because:

On 1/18/2022 at 1:56 PM, #toomanyrules said:

Allocation conditions for profit sharing are last day and 1,000 hours.

If you have any participants who are receiving an allocation of prevailing wage contributions, and that contribution is being included in the testing for the profit sharing allocation, then you have to include those participants as benefiting under the profit sharing portion of the plan, regardless of whether they met the plan's allocation conditions.

For example, if you have an employee who terminated but who received a prevailing wage contribution equal to 2% of pay, they are now in your test. If the gateway minimum is 5%, then this person would have to get an extra 3% as a profit sharing contribution in order to pass the test, even though they didn't meet the conditions for a profit sharing contribution. Most plan documents that I've seen include an automatic waiver of allocation conditions if needed to pass the gateway test.

[Bill Presson]

What do you do with the PW money for a participant that doesn't meet the last day/1000 hour requirement? Don't they HAVE to get the money and it has to be 100% vested?

[Bri]

I usually see override language to the allocation conditions specifically for those amounts.