Multiple Formulas?

401k plan with 3% SHNE + Integrated Profit Sharing

Has a last day and 1000 hour requirement - Two out of the three NHCE's terminated with over 1000 hours worked in 2021.

Two HCE's - both max 401k and get 3% SHNE and then and integrated PS - one HCE above wage base so slightly higher percentage on the PS cont.

HCE 1 non-elective = 3% + 10.28% = 13.28%

HCE 2 non-elective = 3% + 7.38% = 10.38%

NHCE 1 non-elective = 3% + 7.38% = 10.38%

NHCE 2 non-elective = 3% + 0.00% = 3.00%

NHCE 1 non-elective = 3% + 0.00% = 3.00%

Plan passes 410(b) ratio at 100% because all are getting a non-elective.  But my question is do I have to now test the plan for general non-discrimination because two of the three NHCE's are only getting the 3% SHNE and no profit sharing?  

It will not pass average benefit percentage part of non-discrimination because HCE 2 is a spouse of HCE 1 and defers at a rate of 70% 

I was thinking there is a multiple formula rule that exists when something like this presents itself - even in what is otherwise a "safe harbor" allocation of the profit sharing which integrated with SS would fall into.  

Right, you pass coverage but not necessarily nondiscrimination because it's a different nonelective contribution rate for different folks.

Failsafe language in the document wouldn't help because you're not failing 410(b).

So if your ABPT is a nonstarter in terms of hoping to pass, you're going to need to fix the rate groups for the HCEs by increasing the profit sharing for those NHCEs who got zero.  Basically each HCE's rate group is 1/3 NHCE and 2/2 HCE based on their total nonelective contribution amounts.  And yes you can impute disparity, so I think it should just mean a 7.38% PS rate for the zeros so that you get to 3/3 NHCEs.

(2/3 NHCEs would have been okay if you could pass the ABPT but it sounded like those spousal deferrals are killing you.)

Or, for another tack, you could try to cross-test the nonelective contribution amounts by themselves and hope you can pass both rate groups at 3/3.  If all the rate groups are at 70% then you don't need to pass the ABPT.  

1 hour ago, Becky Schwing said:

I was thinking there is a multiple formula rule that exists when something like this presents itself - even in what is otherwise a "safe harbor" allocation of the profit sharing which integrated with SS would fall into.  

The multiple-formula rule under 1.401(a)(4)-2(b)(4)(vi) requires that the formulas be available to employees on the same conditions. Since there are different conditions for the SHNEC and the integrated profit sharing, you can't use it.

I was trying to skim through my EOB, and I thought it was suggesting you can get away with no gateway, if the cross-testing is specifically just to pass the rate groups, rather than the overall average benefits test.

16 minutes ago, Bri said:

you can get away with no gateway

only if allocation rates are broadly available, which may be your case

On 3/25/2022 at 11:30 AM, Becky Schwing said:

But my question is do I have to now test the plan for general non-discrimination because two of the three NHCE's are only getting the 3% SHNE and no profit sharing?  

Nope, as long as the integrated allocation is the one elected in the document, you don't need to test beyond coverage; the design-based safe harbor is very tenacious.  1.401(a)(4)-2(b)(4)(iii) allows for the use of conditions on the allocations. 

@C. B. Zeller, (vi)(D)(3) allows for different conditions if one of them is a top-heavy formula, which the safe harbor is in this instance.

17 hours ago, Nate S said:

Nope, as long as the integrated allocation is the one elected in the document, you don't need to test beyond coverage; the design-based safe harbor is very tenacious.  1.401(a)(4)-2(b)(4)(iii) allows for the use of conditions on the allocations. 

@C. B. Zeller, (vi)(D)(3) allows for different conditions if one of them is a top-heavy formula, which the safe harbor is in this instance.

Here is the section you are referencing, it does not apply in this case.

Quote

(3) Top-heavy formulas. In the case of a plan that provides the greater of the allocations under two or more formulas, one of which is a top-heavy formula, the top-heavy formula does not fail to be available on the same terms to all employees merely because it is available solely to all non-key employees on the same terms as all the other formulas under the plan. Furthermore, the top-heavy formula does not fail to be available on the same terms as the other formulas under the plan merely because it is conditioned on the plan's being top-heavy within the meaning of section 416(g). Finally, the top-heavy formula does not fail to be available on the same terms as the other formulas under the plan merely because it is available to all employees described in § 1.416-1, Q&A M-10 (i.e., all non-key employees who have not separated from service as of the last day of the plan year). The preceding sentence does not apply, however, unless the plan would satisfy section 410(b) if all employees who are benefiting under the plan solely as a result of receiving allocations under the top-heavy formula were treated as not currently benefiting under the plan. For purposes of this paragraph (b)(4)(vi)(D)(3), a top-heavy formula is a formula that provides the minimum benefit described in section 416(c)(2) (taking into account, if applicable, the modification in section 416(h)(2)(A)(ii)(II)).

The formula described in the OP is a sum of two formulas, not a greater of two formulas.

Aside from that, I am not sure that a safe harbor contribution meets the definition of a top heavy formula described in this paragraph, since it a) is made to both key and non-key employees, b) is made without regard to whether an employee has separated from service as of the last day of the plan year, and c) is made without regard to whether the plan is top heavy.