DB/DC Gateway - What If Safe Harbor Match?

[metsfan026]

I know the gateway for the combo plans is typically 7.5% (which can be split between 3% SH + 4.5% PS).  What happens if it's a Safe Harbor Match?  What type of Profit Sharing contribution do we have to include, because we're running into the 6% deductible contribution going over 6% to the eligible employees (less for the HCE)

[John Feldt ERPA CPC QPA]

Once you reach the 6% limit, and if it is still not passing, you could consider increasing the DB accruals or CB credits for the NHCEs. If you’re looking at 2022, then that would be a retroactive increase under 1.401(a)(4)-11(g).

[metsfan026]

The gateway is an aggregated 7.5%, correct?  So if we are giving 6% in the Profit Sharing plus a SH Match plus a flat dollar amount in the Cash Balance (say $2k per employee).  That should suffice the gateway, correct?

50 minutes ago, John Feldt ERPA CPC QPA said:

Once you reach the 6% limit, and if it is still not passing, you could consider increasing the DB accruals or CB credits for the NHCEs. If you’re looking at 2022, then that would be a retroactive increase under 1.401(a)(4)-11(g).

 

[John Feldt ERPA CPC QPA]

Aren't you working with an actuary on this? It is not likely that your suggestion works. It depends on the present value of the cash balance plan accruals for the NHCEs when those amounts are converted using the required factors. The cash balance credits are not equal to the values that get counted toward the gateway. The amounts must be converted to their actuarial value. See 1.401(a)(4)-9(b)(2)(v)(D)(3) if you want to average this for the NHCEs.

Also, if you are trying to avoid the combined pan deduction limit by keeping the DC plan's employer contributions at 6% or less, then you must count all match and all PS toward that 6% limit. And all employer contributions to the DC plan are counted to trigger the combined plan deduction limit, so if the match is about 2% of eligible pay and the PS is 5% of eligible pay, then the DB plan has a very low deduction limit because the overall employer contributions to the DC plan are over 6% and that triggers IRC 404(a)(7), limiting the DB plan deduction. Of course, we are assuming the cash balance plan is not subject to PBGC coverage.

edit: typo

[Bri]

7.5% is usually the highest the gateway has to go, but your testing numbers will determine if a lower gateway applies.

[Lou S.]

And matching contribution are not used in the gateway test which why we typically see the SHNEC used as opposed to SHM since the SHNEC can be used as the floor to start top heavy, gateway, and 401(a)(4) testing. Though the SHNEC approach can present it's own set of issues sometimes trigger a gateway for terminated employees.

[CuseFan]

Gateway is 7.5% and includes profit sharing at applicable percent and the equivalent normal allocation rate (or NHCE average thereof) of the cash balance (which is usually significantly less than the CB credit %). The SHM does not count toward gateway but does count toward your 6% DC employer limit if you want to avoid the combined plan deduction limits as people have noted. Therefore, to enable large CB deduction skewed toward owner(s), you often must limit the owner(s) profit sharing to leave enough room for NHCE gateway.

Usually a combo design is much better with a SHNE in the DC as it counts for testing and gateway, but that is a prospective conversation to have with the client.