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I have a plan with 401(k) deferrals and profit sharing.  The plan is top heavy.  The elig for the 401(k) is age 21, 1 month of service entering monthly.  The profit sharing is age 21, 1 YOS, entering quarterly.  It is a new comp plan with each person in their own group. 

I have an employee with a DOB in 1993 and a DOH of 9/29/2017 who was hired as an intern.  On 10/24/2019, she was reclassified as a "regular employee".  She did not complete the YOS (1000 hours) in 9/27/2017 -- 9/26/2018 or 1/1/2018 -- 12/31/2018.  She will complete the YOS for 1/1/2019 -- 12/31/2019. 

Based on her data, she will become a participant in the 401(k) portion on the date that she becomes a regular employee (10/24/2019) and she can begin to defer immediately.  Since she did not meet the YOS previously, she will not become a participant in the profit sharing portion of the plan until 1/1/2020. 

So for 2019, she is eligible for the 401(k) portion of the plan.  She is actively employed on the last day of the plan year so she is entitled to the TH minimum allocation. 

The issue is that based on her indicative data and the fact that the 401(k) portion uses an elapsed time methodology for eligibility, I believe that she would be a statutory employee.  (She has met age 21 and she has met a YOS, on an elapsed time basis, on 9/26/2018.  Based on the statutory entry dates, she would be a statutory employee as of 1/1/2019.)  Do you agree?  If not, why? 

Under the assumption that she is a statutory employee, she is now required to receive the minimum gateway contribution.  If this is correct and she does receive it, she will have a high EBAR and cause the testing to go from failing to passing.  Does anyone see any issue with this? 

One more thought on this is, if the allocation changes and the testing then fails, I cannot provide her with an additional contribution that would cause her to get something above the gateway as she is not entitled to it.  Agree? 

Finally, the plan calls for compensation while a participant in the plan, so I ask what should her comp be for minimum gateway purposes?  Since she is received the TH min, should it be her 415 compensation?  If not, what should it be since she has no compensation defined for the profit sharing portion of the plan since she is not eligible. 

My apologies if this is rambling.  Please let me know if anyone has any questions.  Thanks in advance. 

 

 

 

 

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