Who Must Get The 7.5% Gateway?

I'm working on a new client that has a group of participants who are eligible for the 401(k)/Profit Sharing, but are excluded from the Cash Balance Plan.  Are these participants required to get the 7.5% to pass the gateway?  Or can they be given a lower amount into the Profit Sharing?

Basically, I wanted to confirm that the people who get 7.5% are those who are eligible to participate in both the Profit Sharing and Cash Balance Plan?  If someone is only eligible for the Profit Sharing, can they just get the minimum gateway to pass the New Comp testing?

Their contribution, as well as the Safe Harbor Match, does get included into the 6% max going into the Profit Sharing, correct?  (I'm pushing to move this to the 3% Safe Harbor, as it will obviously help), but I wanted to confirm I was correct.

I think you have an aggregated DB/DC "plan" and the people in that "plan" must get 7.5% gateway if they are benefiting in that "plan". If someone gets no CB because you exclude and no PS because they terminated, then no gateway because they do not benefit.

Yes, your 6% DC max is based on compensation of those in the DCP.

You have one gateway for your one aggregated plan. You can't test the gateway on a restructured or component plan basis. I'm disregarding disaggregation of otherwise excludable employees here, since I don't think that's what you're asking about.

17 hours ago, metsfan026 said:

If someone is only eligible for the Profit Sharing, can they just get the minimum gateway to pass the New Comp testing?

This person would need the 7.5% gateway (if that's the gateway minimum).

On 3/21/2023 at 3:40 PM, C. B. Zeller said:

You have one gateway for your one aggregated plan. You can't test the gateway on a restructured or component plan basis. I'm disregarding disaggregation of otherwise excludable employees here, since I don't think that's what you're asking about.

This person would need the 7.5% gateway (if that's the gateway minimum).

Thank you!  What about someone who terminated prior to the end of the year?  That makes them eligible for the Cash Balance (worked over 1,000 hours) but technically not eligible for the Profit Sharing (not working on the last day of the Plan Year).

Would they get only the Cash Balance and not the 7.5% Gateway?

Sorry, I just wanted to make sure I wasn't overthinking this.

You are permissively aggregating the profit sharing and cash balance plans for testing. Anyone who benefits in that combined plan—that is, anyone who gets any contribution in the profit sharing plan or any accrual in the cash balance plan—must be included in the combined test and receive the gateway (unless an exception applies).

So yes, your employee who works 1,000 hours in the year and terminates still needs to get the gateway.

Remember, the gateway is based on the aggregate normal allocation rate, meaning it includes the equivalent allocation rate from the accrual in the cash balance plan. So the profit sharing contribution needed to satisfy the gateway should be somewhat less than 7.5%.

37 minutes ago, C. B. Zeller said:

You are permissively aggregating the profit sharing and cash balance plans for testing. Anyone who benefits in that combined plan—that is, anyone who gets any contribution in the profit sharing plan or any accrual in the cash balance plan—must be included in the combined test and receive the gateway (unless an exception applies).

So yes, your employee who works 1,000 hours in the year and terminates still needs to get the gateway.

Remember, the gateway is based on the aggregate normal allocation rate, meaning it includes the equivalent allocation rate from the accrual in the cash balance plan. So the profit sharing contribution needed to satisfy the gateway should be somewhat less than 7.5%.

Got it, thanks!  And that doesn't apply to HCE, correct?  The gateway is only for the NHCE?  And the HCE can get a lesser amount in Profit Sharing?

I think I'm confusing myself.  Sorry!

Hey it could be worse, you could be hiding "this is a safe harbor 401k plan" from us....

(HCEs don't get gateway but might still need some extra top heavy minimum, if they're in both plans.)

23 minutes ago, metsfan026 said:

Got it, thanks!  And that doesn't apply to HCE, correct?  The gateway is only for the NHCE?  And the HCE can get a lesser amount in Profit Sharing?

I think I'm confusing myself.  Sorry!

Gateway must go to NHCEs who receive non-match employer contribution.

TH Minimum must go to Non-Key who qualify (1000 Hrs in DB, last day in DC)

Assuming the Plan Document allows the flexibility you can always discriminate against one HCE over another.

14 minutes ago, Lou S. said:

Gateway must go to NHCEs who receive non-match employer contribution.

TH Minimum must go to Non-Key who qualify (1000 Hrs in DB, last day in DC)

Assuming the Plan Document allows the flexibility you can always discriminate against one HCE over another.

Perfect, so they can get some Profit Sharing but not the full 7.5%.  It's only one HCE, so that makes it easy.

Thank you!

Also remember that match doesn't count towards gateway.

On 4/4/2023 at 1:00 PM, Lou S. said:

Gateway must go to NHCEs who receive non-match employer contribution.

TH Minimum must go to Non-Key who qualify (1000 Hrs in DB, last day in DC)

Assuming the Plan Document allows the flexibility you can always discriminate against one HCE over another.

Sorry, one more on this has come up.  There are eligible participants who worked under 1,000 hours during the year.  They have to get the 3% Top Heavy, obviously.  But is that all they get?  I just wanted to make sure they shouldn't be getting the 7.5% Gateway.

I'm sure I'm overthinking this, just checking something another TPA did and I'm confusing myself lol

in for a penny, in for a pound - if they get 3% then that has to be ramped up to cover gateway

The gateway is satisfied if all NHCEs in the test receive an allocation of no less than the applicable minimum. If this person who worked less than 1000 hours didn't get an accrual in the DB plan, then they have to get the entire allocation from the DC plan. Since they received a DC top heavy minimum, they will have to be included in the test, and if they're included in the test then they have to get the gateway minimum.

If this person were otherwise excludable (because they are under age 21, or never worked 1000 hours in any year), then you might not have to give them the gateway minimum, if you can pass testing by disaggregating otherwise excludables.

7 minutes ago, C. B. Zeller said:

The gateway is satisfied if all NHCEs in the test receive an allocation of no less than the applicable minimum. If this person who worked less than 1000 hours didn't get an accrual in the DB plan, then they have to get the entire allocation from the DC plan. Since they received a DC top heavy minimum, they will have to be included in the test, and if they're included in the test then they have to get the gateway minimum.

If this person were otherwise excludable (because they are under age 21, or never worked 1000 hours in any year), then you might not have to give them the gateway minimum, if you can pass testing by disaggregating otherwise excludables.

Thank you!  So even though they were under 1,000 hours they will be getting the 7.5%.

I appreciate it!