When a firm has a DB and PS plan that are tested together for nondiscrimination purposes, there are additional rules above and beyond the general test. These rules were created several years after the 401(a)(4) regulations were passed. At that time, the IRS looked at designs that satisfied the regulations, but determined that naughty practitioners were taking too much advantage of the rules and that contributions were being too heavily skewed in favor of owners. As a result, in addition to passing the general test, the plans must now satisfy one of the following requirements:

• The DB plan must be primarily DB in character. This requirement is met if more than 50% of the NHCEs benefiting under the plan have a normal accrual rate under the DB plan that exceeds their normal benefit accrual rates under the DC plan.
• The plans must be broadly available separate plans. This requirement is met if the DC plan and the DB plan would each pass 410(b) and 401(a)(4) if each plan were tested separately.
• The plans must satisfy the minimum allocation gateway. This requirement is met if each NHCE’s combined normal allocation rate (i.e., the sum of the NHCE’s allocation rate under the DC plan and the NHCE’s equivalent allocation rate under the DB plan) is not less than a minimum percentage, based on the highest HCE rate. These rates are determined by calculating the hypothetical contribution to fund the DB benefit plus the PS allocation. If the DB plan is designed to fund for maximum benefits for owners, then this percentage is usually 7.5% of pay. The use of this DB/DC gateway on top of the general test essentially provides that a DB plan tested with a PS plan must be tested for non-discrimination purposes based on both benefits and contributions. In most DB/PS combination designs for professional firms, this approach is the most common because the plans are almost always designed in a way that the other two requirements cannot be satisfied. With a design subject to the DB/DC gateway, one must remember that since the gateway is a combination of the hypothetical contribution to fund the DB increase plus the PS allocation, the amount of gateway provided to NHCEs by their DB benefit will differ based on their age. For example, a cash balance credit of 7.5% of salary does not necessarily satisfy the 7.5% of pay gateways for all participants.