QSOB Employer-Wide Testing Requirement ("Gateway" test)?

Hello,

I'm looking for clarification on whether or not there is an aggregate employer-wide coverage test that has to be applied in order to qualify as a QSLOB, in addition to passing coverage for each QSLOB separately. Much of what I've read seems to indicate this, referencing a "gateway" test for coverage.

From ASPPA DC-3 Study Guide:

"If the requirements for QSLOB are met, an employer may elect to apply the coverage tests under IRC §410(b), and, as a result, the nondiscrimination tests of IRC §401(a)(4) separately to each QSLOB. In other words, the purpose of making a QSLOB election is to perform certain testing requirements on a QSLOB-basis rather than on an employer-wide basis. In order to perform the coverage (and thereby nondiscrimination testing) separately, the plan must first satisfy the nondiscriminatory classification requirement of the coverage test under IRC §410(b) on an employer-wide basis."

IF the "employer-wide" test is needed, would a controlled group be required to do a control-group-wide coverage test in order to have QSLOBs within the controlled group?

The point of confusion is that a reason for having a QSLOB in the first place is to avoid coverage testing on a plan-wide or employer-wide basis.

What am I missing?

DC-3 Study Guide: https://asppalearningtpabenchmark.org/wp-content/uploads/2020/01/PDF-DC-3-Study-Guide-8th-Edition.pdf

Attached is an excerpt from IRS publication found here: https://www.irs.gov/pub/irs-tege/epchd103.pdf

IRS QSLOB Coverage Testing.pdf

The nondiscriminatory classification test is not the entire coverage test. Please refer to section 5.03 of the book that you linked.

I have never heard of it referred to as a gateway test, but then I don't do much work with QSLOBs. Usually "gateway" means the minimum allocation gateway for cross-testing DC plans on an accrual basis for 401(a)(4).

As an aside, I am surprised that ASPPA is ok with posting their entire study manual on a public website. They usually charge a lot of money for that book.

The IRS publication goes more in depth on the QSLOBs satisfying two coverage tests, employer-wide and separately with each QSLOB. 

In this context, the gateway test is satisfied when each QSLOB satisfies nondiscriminatory classification test on an employer-wide basis and also separately for each QSLOB. The cross-testing gateway is something else.

I'm hoping someone familiar with QSLOBs can provide some more insight on the application of this, and if there is a nuance I'm missing or misinterpreting.

I was also surprised to find the ASPPA book posted!

I think the missing piece is that if the ratio percentage test is not satisfied on an employer-wide basis, then you test the nondiscriminatory classification test on an employer-wide basis without regard to the average benefits percentage test - see 1.414(r)-8(b)(2). Without the average benefits percentage test, the nondsicriminatory classification test is just the ratio percentage test with a lower - in some cases, much lower - bar to pass.

1 hour ago, patriciab said:

I was also surprised to find the ASPPA book posted!

I think that it's an (un)intentional back door to a site that acts as a middleman between ARA and candidates (I could be wrong)

I sent ASPPA an e-mail about it.