HCEs - Multiple Employer Plan

[Disco Stu]

I administer a multiple employer plan that added an additional participating employer this year. The new member is a newly established company. A couple of the HCEs from one of the existing employers went to work at the new company.

My feeling is that this new company will have no HCEs (based on compensation) in their first year of existence because no one earned any wages during the prior year. I have had someone tell me I am mistaken on this, that compensation earned at another participating employer would be used in determining HCE status. I've been looking for some guidance of a less anecdotal nature, but haven't found much. Anyone have any cites that would help me?

[jaemmons]

Generally speaking, it depends on whether or not your master plan document "imputes" service and/or compensation between participating employers. Under Treas Reg 1.410(B)-7©(4)(ii)©, there is a discussion of how plans are treated for coverage when a plan is maintained by more than one unrelated employer (Multiple employer plan). If the document states that service and/or comp is aggregated (imputed) amongst partic.employers, you would count comp together in determining HCE status.

If compensation is imputed, you would use it in determining HCE employee status and performance of all nondiscrimination testing for the year. If service is also imputed, you would use this in determining eligibility for coverage purposes.

Please keep in mind though, that ownership is not to be imputed, unless by reason of stock attribution under IRC 318 or 1563. Therefore, if you have someone who was a 5% owner but made less than $85,000 in 2000, they would not be an HCE for 2001, even though you are imputing compensation amongst participating employers.