Highly Compensated Issue

[pmacduff]

We have an employer who sold the assets of the Company to a "person" in 2002. However, this "person" was already an employee of the original entity (since 2000 but not highly compensated). There is a new plan under the new Company, but we are involved in termination of the old plan. Here's the question...original owner was paid in 2002, but did not defer. No problem there...0% for ADP test...but new owner (formerly a regular employee) did defer into the old plan for the first two quarters of 2002. He did NOT have any ownership in the original sponsor (the plan we are terminating). Is the new owner considered highly compensated for 2002 testing purposes?

[Tom Poje]

I would vote 'yes'. (But remember, I am from Florida, so if you hold the ballot up to the light you might see a hanging chad that indicates I voted 'no'.)

You didn't indicate exactly what date the 'new ownership' took place. Since we are only in the first part of August, I will assume the individual was an owner before July 1, and therefore any 5% owner is treated as an HCE.

[jaemmons]

I don't believe the new "owner" is an HCE unless he/she meets the compensation limit for the 2001 lookback year. Technically, the new "owner" doesn't own stock, since you indicated that this was an asset sale, which does not make this person a 5% owner under 414(q), assuming this is a corporation.

Is this truly an asset sale or was there stock involved? Unless, there was stock involved, I don't feel the new "owner" is an HCE.

[MJ Hartman]

the company in question was an sold in assets, not stock. employees were terminated from the old company and rehired as new employees of the "new company". that was our question. because this was not a sale by stock it would seem that the old plan would not be recognizing the owners of the superceding company. co. was sold in april, so contributions made under the old plan should not have to be concerned with new ownership, new hce deferrals, correct?