top heavy, 401a26, stuff like that

Fun stuff here, doing a DB/DC combo.  One terminated NHCE is the only statutory exclusion.  But she did get to 1000 hours and is getting a contribution credit, but not enough to cross the theoretical 0.5% threshold.

My hope was that I could leave her out of the "main test" so that she gets a 5% top heavy minimum only under the DC and not the normal gateway 6.5% rate.

Problem is, if I disaggregate the statutory exclusions, then I've got a "plan" with just the one NHCE who doesn't "benefit".

And the Regulation 1.401(a)(26)-1(b)(1) excludes NHCE-only plans from 401a26 if

(a) not top heavy

(b) no HCEs

(c) not aggregated for 410b or 401a4.

The conclusion I'm drawing here is that I can't wait for the disaggregated top heavy testing under SECURE 2.0.

Because I'm thinking either (a) increase the CB credit up to 0.5%, or (b) just test her with the non-excludables and give her the higher gateway.  And since (b) is cheaper than (a), I feel like I wasted an hour trying to carve her out in the first place.

Any other thoughts?

--bri

How is that person statutorily excludable? That only applies if the person terminated with 500 or fewer hours and did not benefit by reason of such. You don't need to increase CB accrual, you do need to include in testing and you do need to provide gateway. You can credit the average NHCE ENAR toward this person's gateway. If TH is provided under DCP and requires year-end employment, I don't think this person needs TH, but gateway requirement makes that a moot point.

I use "statutory exclusion" to refer to people not meeting 410(a)(1) and (4).  Hired March 2021, entered July 1, 2022, terminated August 2022 before their "must be in" date in September 2022.

Thought being, test the plan of employees like this consisting of just her.  (She needs a 5% THM because she hit 1000 hours, as the DB plan spells out its TH comes from the DC plan for the 5.)   And then everyone else would the actual gateway because they're tested against the owners.

If the plan were able to also test top heavy separately for the excludables, then her disaggregated "plan" would meet the 401a26 exemption, I think, so that she wouldn't need a specifically meaningful benefit.

I ended up not disaggregating after all, was probably a $300 difference out of like 500,000 in company contributions due, and most of it isn't vested anyway.