"Combination cash balance plan (1,000 hours for allocation) and PS 401k with SH match and individual groups with no allocation conditions for PS.
Two NHCEs terminated with less than 1,000 hours, so no CB allocation and no top-heavy (if applicable, but not TH yet anyway). The CB providers doing the testing think that the employer can declare zero PS for these two NHCEs and therefore, they are not benefiting under the (combined) plan with respect to 401(a) source and need not be provided the gateway allocation of 5%. Employer was given option to give these two 0% or 5%.
The DC providers think that these two NHCEs are required to get the gateway because there are no allocation conditions.
I am in the CB camp (no gateway). Regulations say gateway is required for employees benefiting under the "plan" and refers to 1.410(b)-3 for
'benefiting', which says:
§ 1.410(b)-3. Employees and former employees who benefit under a plan.
(a) Employees benefiting under a plan -
(1) In general. Except as provided in paragraph (a)(2) of this section, an employee is treated as benefiting under a plan for a plan year if and only if for that plan year, in the case of a defined contribution plan, the employee receives an allocation taken into account under § 1.401(a)(4)-2(c)(2)(ii), or in the case of a defined benefit plan, the employee has an increase in a benefit accrued or treated as an accrued benefit under section 411(d)(6).
These two terminated NHCEs are not receiving an allocation. It is clear we cannot exclude them from coverage and nondiscrimination testing, even if hours are less than 500, because that's not the reason they do not benefit -- the reason is
that the employer (under the terms of the plan) decided that these individual allocation groups will not be given a profit sharing contribution. As long as coverage and nondiscrimination pass with these people included as zeroes (in the denominators only), I think we're good and isn't an issue because this is a fairly large plan.
Who is correct -- the CB or the DC providers?"