I am starting to do the 2004 cross testing projections and am getting confused by the "early entrants" into the 401(k) portion of the plan.

Top Heavy Plan
401(k) - 3 mos service
ER (SH-NEC & PS) - 12 months

Employee is in the 401(k) portion only, but gets TH min, not SH.

Cross Testing:

Ratio %: only the folks in the ER portion (ignore the TH min ee)
Average Benefit Test:
- NDC - only the folks in the ER portion (ignore the TH min ee)
- AB%T - include the TH min guy (def and TH min)

Is that right? Thanks -

One easy answer would be to test otherwise excludables separately.

In that case all ees with less than a year would be tested separately anyway.
I am not wild about the term 'ignored' because I can't tell from that term if you mean 'includable and not benefiting' or simply 'doesn't show up at all'
well maybe its not that easy, because maybe I need the guy to pass avg ben % test.

now, what if you don't want to test otherwise excludables separately.
I think it might be a gray area. I lean toward the following logic.
I have 2 profit sharing plans - one with a 1 year wait, and another with (in your example) a 3 month wait - that plan provides the top heavy. given those conditions, I would lean toward testing all employees, using the requirement that you have to test using the plan with the least stringent requirements e.g. 3 months.
but I would also say I think it isn't 100% clear.

Thanks alot for the response.

By ignore I meant 'doesn't show up at all'.

So, testing separately I don't have to put the TH mins in the AB%T for the "main" plan, right?

But If I get better results I would bring them into the AB%T? but have them excludible for the R%T and NDCT. (doesn't show up at all...)

Thanks

If I'm following this (and that is by no means certain), then not separately testing otherwise excludables (including top heavy only people) might result in some people in the rate group test not getting the gateway, which means that you can't test in that manner at all. So you must test them separately. Or am I missin somethin?

That is a clarifying comment for me. Thanks.

So it sounds like if I don't give them gateway then must be tested separately and they are out of both the RPT and the ABT (including the AB%T).

I really appreciate your help.

Andy raises an interesting point about the gateway minimum.
my understanding is that before I even get to cross testing I have to 'pass through the gateway'. once an ee has received the top heavy he would have to be bumped up. now I can cross test, and one of my options is to test separately.
e.g. until I pass GO and give each person '$200' I can not cross test under any way shape or form.


the only exception to the rule is under the broadly available option - two groups could be treated as a single rate if each could pass 410b by itself.
e.g. one group gets 10% and another gets 3%. this could happen if you have people in classes and each class consists of some HCEs as well as some NHCEs, enough in each class so as to pass BRF.

looked it up, and the following was in the preamble to the regs:

if a plan benefits employees who have not met the min age and svc requirements, the plan may be treated as 2 separate plans, one for otherwise excludables and one for the other benefiting ees. Thus, if treated as two separate plans, cross testing the portion of the plan benefiting the nonexcludable ees will not result in minimum required allocations under the gateway for the ees who have not met the min age and service.

guess I was wrong on my assumption you pass gateway first. split into two plans, then worry about the possible gateway