If current year comp is $54,000 but 3 year High Average at 401(a)(17), comp for testing & plan benefit purposes for DB/DC combo plan

A client financial adviser suggested, the client could take very low salary for the next couple of years to reduce the tax burden.

My major concern is that each year we need to run Non-discrimination test under Treasury Regulation §1.401(a)(4)-9 Aggregating DB and DC Plans.

This client DB/DC combo plan use the minimum aggregate allocation gateway (GT) in order to test on a benefits basis

Isn’t the plan required to use plan year compensation, pay defined under 415(c)(3) (not 414(s)), and annual method to calculate allocation rate for gateway purposes?

If so, wouldn’t using very low current year compensation greatly affect the EBAR for gateway test, which in turn requires the plan to provide higher employer contributions in order to pass the test?

Please help, if possible include the section of the regulation that allow or disallow the financial adviser suggestion.

Many Thanks!!!!!

Under 1.401(a)(4)-3(e), the compensation to use for nondiscrimination testing is average compensation, but there is an exception to allow you to use annual compensation under 1.401(a)(4)-3(e)(2)(ii)(A). Most plans use annual compensation (easier).

The determination of the minimum gateway requirement (finding the highest HCE allocation) is not based on average compensation, but is based on annual compensation. Thus, with lower compensation for the plan year, the minimum combined plan gateway will likely be the maximum 7.5% of compensation to be provided to the benefiting NHCEs.

Also, you are correct that the minimum gateway is allocated using annual compensation for the testing year, not allocated using average compensation.

Thus, using average compensation instead of a currently very low compensation will help the nondiscrimination test - the ebars for the test will have the highest x years of average compensation over the last y years. X must be at least 3 years. Review 1.401(a)(4)-3(e)(2) overall.

With the average compensation in the denominator for each ebar, instead of the current very low compensation for the HCE,  the HCEs ebar is kept as low as possible. Of course, you must have enough compensation history for all employees since this method has to be consistent with all employees in the test. You can't use annual for some and average compensation for others.

edit:typo

Many thanks!

As you suggested, I'll carefully review 1.401(a)(4)-3(3)(r) 

Sorry, that was a typo. try 1.401(a)(4)-3(e)(2) overall.  My frozen fingers!