I am working on a plan with 2 owners and 6 NHCEs. Each owner has a 2003 hire date, and the NHCEs all have 2004 hire dates. If all of the NHCEs are excludable employees, is it true that they do not need to receive a PS contribution if the plan is disaggregated?

This plan has a safe harbor match, & no other non-elective contributions.

Thanks!

I assume the plan is topheavy, in which case a topheavy minimum must be provided.

well, something is amiss.
you said the plan is cross tested, but also said there are no other non elective contributions, but then also asked if the NHCEs need to receive a ps contribution which is a non elective contribution.

Plan is safe harbor, with a safe harbor match. If there are no other contributions at all then the plan is not top heavy so no other contributions needed.

if there is no eligibility requirements, but the safe harbor is provided only to statutory includables, then the plan does not get the free top heavy ride and will therefore have to provide a top heavy to the NHCEs. (assuming of course the plan is top heavy)

A little more to the story: This is a 1st year plan. The safe harbor match is given to all eligibles in the plan. I mentioned no other nonelective contributions were given to show that the gateway would not be a factor.

Now that I think about it, once the New Comparability PS is given to the owners, the plan will become top heavy because receivables are included for 1st year plans for top heavy determination. With this said, if the 3% is given, must I also provide the extra 2% to the NHCEs for the gateway(owners will receive 20%)?

Thanks

It depends on your document to not have language that prevents this, but the statutory language allows you to disaggregate those that haven't met the 21/1 for nondiscrimination testing. Thus, here you effectively have 2 groups, the HCE non-otherwise excludables and the NHCE otherwise excludables.

So in this case, you aren't even needing to test the contribution for nondiscrimination because both groups automatically pass. The NHCE's must receive the TH min, but the SH match can be used towards satisfying this.

Brilliant! Thanks for the reply. The only problem I forsee with this is if the 4% on the eligible pay does not cover the 3% annual pay, the client would be required to ante up with a nonelective. This would then create the problem of meeting the gateway for those that need the additional PS, correct?

CAP, Gateway will apply to anyone who receives a nonelective contribution even if it is the TH minimum only.

if 'plan' is treated as 2 separate 'plans' then the gateway does not apply to the otherwise excludables (unless that group also has an HCE and therefore needs to be cross tested.)
I suppose where it gets confusing is if the plan is safe harbor, the plan still loses its free ride on top heavy since other non electives were made.

CAP and jquazza, listen to Tom. To try and expand on Tom's post and reiterate what I said originally, the general rule is that if cross-testing, those receiving a nonelective contribution must receive the gateway. However, the exception to this rule is that you can disaggregate the otherwise excludable employees. You want to do this here, so that leaves your otherwise exludable group as consisting of only NHCE's. You don't need to cross-test this group because it automatically passes nondiscrimination testing since it consists of only NHCE's. Thus, no gateway is required, only the TH minimum.

To summarize what you are saying, the otherwise excludables do not have to receive a contribution at all, including those that received a nonelective contribution for top heavy purposes.

Thank you all for your assistance on this.

CAP

Your sentence is contradictory. It's like saying you don't have any money, except for that quarter in your pocket. But I am just giving you a hard time. I think I know what you mean, but to reiterate, the otherwise excludables need to receive the TH minimum. They do not need to receive the gateway.

To clarify:

Plan is safe harbor match. Client wants to make a New Comparability PS to the plan, requiring the plan to be tested for top heavy. Otherwise Excludables will not be receiving an allocation of the PS, which leaves the two owners as the only recipients. Since it is a 1st year plan, receivables are included in the top heavy ratio. Some of the safe harbor match covers the top heavy due to the NHCEs, others need to be trued up with a nonelective contribution. Because this group automatically passes nondiscrimination testing, no gateway is required.

Thanks again for your help.

Tom,

I agree with you, I don't know what I was thinking when I wrote that.