Correction of failed 401(a) or 410(b) tests?

I'm working on testing a plan right now. It's a newcomp / cross-tested plan. With our proposed profit sharing to max out the owner, it fails general nondiscrimination testing. I'm in over my head here with the correction methods for this; My understanding of the failsafe coverage provision is that, if elected, it provides a rigid method for who to allocate contributions to in order to pass testing, and if NOT elected, an 11g amendment must be made in order to pass testing. That said, the plan document says that all employer contributions are discretionary... Can they allocate money to employees otherwise ineligible for profit sharing because it's discretionary? 

Another note: Who needs to recieve a 5% gateway allocation in order to use cross-testing? My instinct would be that it's only employees eligible for profit sharing, however our testing software seems intent on putting anybody eligible for the plan as a whole (including people eligible for deferral but not profit sharing) on the minimum allocation gateway test. 

Failsafe provisions generally address 410(b) rather than 401(a)(4).  

That's the first thing to clear up - whether you have insufficient people, versus insufficient benefits to those people.

Gateway minimums are required for anyone sharing in the nonelective contributions of the employer.  (That means, in for a penny, in for a pound, and if you have a 3% SH nonelective, that means they're already benefiting some, if not yet enough to meet that gateway level.)

If your plan allocates individual contributions by person (rather than one big contribution to be shared pro rata, if your plan says that instead - I'm referencing individual allocation classes with 1 person in each class) then you can adjust people with more individually.  That's the typical fix if you're passing coverage but not non-discrimination....increase NHCE benefits as necessary for the 401a4 testing.  

17 hours ago, Bri said:

are required for anyone sharing in the nonelective contributions of the employer.  (That means, in for a penny, in for a pound, and if you have a 3% SH nonelective, that means they're already benefiting some, if not yet enough to meet that gateway level.

So, with this plan, which is a SH NE 3%, the eligibility for profit sharing / employer money is more restrictive than SH. Does that mean everyone who got a 3% NE contribution needs to get another 2% for gateway, even though they aren't eligible for profit sharing?

If they're in the testing, and they're already benefiting from the non-elective safe harbor, then they have to get at least the gateway minimum via additional profit sharing allocations.

Check your plan document, many pre-approved documents will have a line in the BPD indicating that anyone who has to get gateway, will get gateway even if it conflicts with other plan provisions.

On 2/26/2025 at 6:19 AM, Mleech said:

So, with this plan, which is a SH NE 3%, the eligibility for profit sharing / employer money is more restrictive than SH. Does that mean everyone who got a 3% NE contribution needs to get another 2% for gateway, even though they aren't eligible for profit sharing?

If your gateway is 5% then yes, that's exactly what it means. But check your document to see if they come in automatically for gateway, many but not all are written that way. I see Bri already covered that.

As for your failure to pass testing are you failing 410(b) or 401(a)(4) or both?

How is the document written? Everyone in there own group or you have specific group classifications?

Does your plan use the fail safe method or 11(g) approach.