Cross-Tested Plan w/ QNEC to Pass ADP Testing

Plan allocates 5% profit sharing to all eligibles, but everyone is in a separate allocation group. Plan is not a safe harbor 401k.  Plan is failiing ADP but if I do a bottom up QNEC of 5% to both of the lowest paid employees my ADP testing is passed.

If I run a(4) testing with QNEC's I can get it to pass because with QNECs they pass the GWM.  If I run without QNEC's, they are not getting ANY nonelective and thus require no gateway minimum.

Is my logic here correct?  The plan passes rate group testing with the two bottom people treated as not benefitting.

And a follow up question:  I want to allocate exactly 5% as a QNEC to two participants, even though 4% of a QNEC would pass the test.  But again if I do a 1% PS to give the GWM then I need to give a 5% PS contribution because i need to disregard the QNEC's.

My document (Corbel) says I may give a QNEC "Sufficient to pass testing."  Well, 5% is sufficient.  IT doesnt say "not exceed what it is sufficient" it only says an amount that is sufficient.  So that means to me an amount that is at least sufficient.

16 minutes ago, austin3515 said:

If I run without QNEC's, they are not getting ANY nonelective and thus require no gateway minimum.

No, if you look at §§1.401(k)-2(a)(6)(ii) and 1.401(m)-2(a)(6)(iii), making the QNEC expands the group of employees that are deemed to be benefiting under the plan for 401(a)(4) and triggers the gateway contribution. 

yes and when I am running the testing as though QNECS DID exist, I am providing the gateway.  If run as though they do NOT exist, then no gateway required.  When the reg says "excluding QNECs" it seems to me one possible interpretation of that is "no seriously, I meant exclude them 100%",

Language from the reg:

The amount of nonelective contributions, excluding those qualified nonelective contributions taken into account under this paragraph (a)(6)...  satisfies the requirements of section 401(a)(4).

You can use the QNEC to pass the gateway. Once you pass the gateway and now want to cross-test, you have to pass (a)(4) with and without the QNEC. If you can pass (a)(4) without the QNEC, then that's great. It really just depends on the data. 

2 minutes ago, FORMER ESQ. said:

You can use the QNEC to pass the gateway. Once you pass the gateway and now want to cross-test, you have to pass (a)(4) with and without the QNEC. If you can pass (a)(4) without the QNEC, then that's great. It really just depends on the data. 

Actually, when I re-read the Regulation, the only way this makes sense is if the QNEC is not used to meet the gateway test. This is the only way I see this making sense. 

Help me out though.  Is it a little but of which came first, the chicken or the egg?  The question is, does the gateway requirement apply to a participant who is receiving the QNEC in the "without QNECs scenario"?  I get it that your position is "yes" because even though they are testing without QNECs they still have a nonelective contribution so the y really need 10% total to make this work.

If you could explain why it doesnt make any sense it would be helpful.  I won't repeat my logic again but I can't see where it fails.

Also, it is just not in dispute that if I never actually made the QNEc's in the first place that (a)(4) would be passing. I'm not following why that is not a reasonable interpretation of "excluding QNEC's".

I have always interpreted this reg as meaning that the plan must satisfy 401(a)(4) and 410(b) both with and without the QNEC. In your situation, the QNEC is at least equal to the gateway minimum and all rate group pass, so the plan passes with the QNEC. You didn't mention if coverage is an issue treating the participants who only receive a QNEC as not benefiting, so I will assume coverage passes, and all rate groups still pass, so the plan passes without the QNEC. Therefore I think the test passes overall and you are good.