I am testing a Controlled Group that consists of two employers: one contains about 50% HCE's and 50% NHCE's and provides a FAP formula under a DB plan of 1.6% of pay. The other group is mostly NHCE (about 90%) and just recently froze their DB plan and replaced with a 3% profit sharing contribution. The group that is 90% NHCE has about 10,000 employees, while the group with the DB plan has roughly 3,000 employees.

Is there any way for a structure like this to satisfy the DB/DC gateway? Several of the older HCE's in the DB plan have allocation rates greater than 9%, meaning the 1/3 rule won't work. And the primarily DB in character won't work either since the majority of the NHCE's in the CG only receive a PS contribution. Can I use Accrued-to-Date Testing to satisfy the Gateway (i.e. use the frozen DB benefit for the 10,000 ee group that is mostly NHCE's to generate an equivalent allocation rate)?

Any help anyone can think of?

Is the DB a safe harbor? You say it is 1.6% of FAP. Are you sure you need 401(a)(4) testing?

Does the DB sponsor plan really have 1500 HCEs and 1500 NHCEs? Seems weird.

If the DB plan does not require 401(a)(4) testing I'm wondering if it could pass the Average Benefits Test. Have you explored the NHCE concentration percentages by using age and service exclusions?

The answer to your last question is no.

Thanks. I had greatly oversimplified my example to try and answer my main question on different ways to satisfy the "primarily DB in character" gateway.

A more detailed breakout of the CG plans is as follows:

Group A has 3000 ee's (50% HCE; to answer your above question yes this is correct). EE's hired before 2001 are in DB plan which is greater of 1.6% FAP and 5% CB design (FAP wins out for most). This particular group is about 2/3rd's HCE, and only represents about 500 ee's. The remaining 2500 ee's have no DB benefit but receive a 5% PS contribution.

Group B has 10,000 ee's (90% HCE). All were in a 5% CB plan up until 12/31/2009, when it was frozen. They now all receive a 3% PS contribution.

Is there anyway the small portion of ee's in Group A can continue to accrue benefits in the DB plan? I'm struggling to figure out a way to get the aggregated "plan" to be considered DB in character. Is the only way to satisfy the gateway to give all ee's in Group B a 5% PS instead of 3%? (assuming nobody in the Group A DB plan has an allocation rate above 25%)

gateway is only required for NHCEs (unless you have a document that says otherwise), so
Is the only way to satisfy the gateway to give all ee's in Group B a 5% PS instead of 3%
would be
Is the only way to satisfy the gateway to give all NHCEs in Group B a 5% PS instead of 3%

So you have 1,500 NHCEs in the DB and 9000 NHCES in the PS with no current DB accrual or allocation and you're combining them for testing and trying to use the primiarily DB in charachter exception? Is that right?

The majority of benefitting NHCES must have a normal allocation rate attributable to the DB allocation in excess of their DC allocation rate. Certainly that isn't true unless you somehow consider the DB NAR to be the frozen benefit even though there is no current accrual. I think it is settled (at least on these Boards) that their is no NAR using accrued to date if the participant has no current accrual.

No chance of testing on an allocations basis?

I guess the whole "at least on these Boards" comment is one of my issues. There doesn't seem to be clear guidance in the regs on whether we can use ATD accruals for a frozen plan if there was no actual accrual in the current year. The fresh start rules seem to say that you can do this, or at least I thought they did.

Some of the older HCE's in the DB plan generate a pretty high allocation rate under the FAP plan (certainly higher than 5%), so I don't think that would have any chance of passing 401(a)(4).

Understood. If you do some searching on the DB board, you will not find any dissent I don't think. I know Mike Preston for one has has clearly expressed that opinion, as have others, that an accrued to date result is 0 if there is no current accrual.

Tom, what do you think?