Affiliated Service Group - 401(a)(4) / Gateway Testing for owner earning income in two entities

[Towanda]

The owner of two entities in an affiliated service group earns W-2 income in one entity, and K-1 in the other.  His W-2 income is lower than his K-1 income.

When I aggregate the entities for 401(a)(4) / Gateway testing, the system (Datair) is disregarding the K-1 income for purposes of testing.  This impacts the Gateway minimum for starters.  It's the difference between a 5% Gateway and a 4.something% Gateway.  

The message I get is this:  Compensation for 401(a)(4) Discrimination/Gateway Testing differs for sub plans for owners of a sole proprietorship or partnership.  Smallest nonzero compensation will be used for testing in the Master Plan.

Is this a rule, or is this a shortcoming with Datair?

[Lou S.]

Have both entities adopted the Plan? I'm assuming yes. If so why wouldn't you simply aggregate his comp from both entities, limiting the aggregated comp to 401(a)(17) limit for 401(a)(4) testing?

I don't use Datair but it might be an issue where it's having trouble reconciling the same individual in the plan having both SE compensation and W-2 compensation.

You might get a different result for deduction purposes since in ASG each entity has it's own deductible limit based on camp paid by the entity

[truphao]

I am guessing it is shortcoming on Datair part. I have personally discovered one issue in the past that had to do with allocation of deduction for partners and Datair acknowledged that I was correct and added it to their "to-do" list.

There a number of instances where the easiest solution with Datair is to overwrite or "fudge" to get the results you believe is correct.  I think you can simply overwrite just the testing comp in your case.

 

[Jakyasar]

Be careful with the overwrites, they are dangerous especially if you do not document what you do. Good thing about Datair, all the overwrites are in color blue but once updated to the next year, they are no longer blue.

Another way approach is to determine what the net salary would be after all deductions and adjustments for 1/2 se tax for the K-1 and make that entity a corporation by making the owner as a salaried employee and test all together, much better than overwriting and less dangerous. Datair has a master test module so you create all entities separately and include them all for testing under one umbrella (assuming all entities are adopting employers). You can also individually check each entities deductions separately.

Just my 2 cents.

Other great advise, contact Datair, they will help you set it up and/or provide some direction - this is what I would do rather than going crazy with the set up (too late for me)

[Towanda]

Getting ready to post another quandary, and noticed I had responses so I thought I would share this for any Datair users:  I ultimately contacted Datair, and they explained that I had to check a box in Master Plan on the Assumptions / 410(b)-401(a)(4) Screen.  The box says Add Comp from Sub Plans if Different Employers.  

Problem solved.  Compensation earned in both entities was aggregated.

This was, by the way, 2 separate retirement plans.

Thank you!