Top Heavy and Gateway Minimum

[ConnieStorer]

I am working on a cross tested 401(k) Plan.  This Plan has a few allocation groups that are defined as ineligible for Plan Purposes in the Plan Document.  In 2022 one of the participants moved from a non-Partner group that was eligible to participate in Profit Sharing to a Partner Group that is ineligible for participating.  This individual is less than a 5% Partner so he is considered non-key.  In addition, he is not an HCE.  He made employee deferrals prior to becoming a Partner.  

Since he is considered ineligible as of 12/31/2022 would this require the return of his deferrals made when he was eligible to Participate?

He is still employed as of 12/31/2022 so does this  require a 3% top heavy minimum and the gateway minimum of 5%?  If yes, would this be on his W-2 wages only or would we also need to include his K-1 wages. 

Thanks for any insight.

[Mr Bagwell]

I think the plan document will have a section about employees moving from one class to another.

No return of deferrals.  The employee was eligible at the time.

wow, what a messy situation.....  IF......... I would say W-2 wages if needed a top-heavy and gateway as the K-1 earned income is for non-eligible class.

Keep digging....

Hopefully some others will chime in.....

[ConnieStorer]

Thanks Mr. Bagwell.... you are correct about the messy situation part.

The document is an FIS volume submitter.  There is minimal language regarding going from an eligible classification of employees to an ineligible classification.  

 

[Lou S.]

I'm pretty sure he will require a T-H minimum as he was an eligible for participant for of the year, was not a key employee, and is still employed on the last day of the plan year year so he would appear to fall into the 416 definition of who must benefit. And the TH minimum is on 415 compensation so that would be his full year comp maybe I'm wrong but that's been my understanding of TH. And that will also a trigger a gateway for the individual since he's a NHCE. At least that would be my understanding.

And as for the gateway the 5% rule is on 415 comp but the 1/3rd rule is on 414(s) comp which could be different. Though I think for gateway you can limit to comp while a participant if you do that uniformly for all participants.

You can ask FIS how their document addresses the situation.