We have a New Comp/401(k) requiring Y/E employment for PS. ER making 3% SH contribution and PS of add'l 2% to EEs and max to owner. We have one person term'd in November, 2008 w/over 1,000 hrs and so he is eligible only for SH not for PS.

Because of this, the plan does not pass Minimum Allocation Gateway. Does this mean I have to give term'd EE an additional 2% even though he doesn't qualify for PS?

If the gateway is 5%, yes. If you want to leave the gateway at 3%, no. If the gateway is 3%, the maximum allocation for the HCE's would be 9%. Is that enough?

Remember the rule: you can only do what the document permits. if the plan contains gateway language then you can provide the gateway. if the plan does not contain the gateway language then you would need to correct the problem with a corrective amendment.