HCE determination for highly paid employee of new plan added to a control group

[Guest crosseyedtester]

This is for a 2002 ADP test HCE determination.

As of 12/31/01 there was one plan.

As of 1/1/02, two new plans were started and a control group was created using all three plans.

This is probably a simple question.

An employee in one of the new plans, hired prior to 2000, has compensation over $100,000 in 2001. Because the plan is new in the control group, would this employee be considered HCE for the ADP test since HCE determination is based on prior year Compensation?

[Guest crosseyedtester]

Further clarification on my question:

There are three separate companies at 12/31/01. Only one has a 401(k) Plan.

At 1/1/02, the two other companies start up individual 401(k) plans and establish a control group.

In determining HCE's for the 2002 test, my assumption is that only employees in the first plan in existence can be looked at in 2001.

Any thoughts?

[Tom Poje]

I would hold that anyone who made 85,000 in 2001 is an HCE, regardless.

suppose there is no controlled group. a company starts a new plan. you look at last year's comp to determine who is an hce.

the fact a controlled group already exists shouldn't make a difference. all employees are treated as working for the same employer.

the only difference might be if this is a situation in which a controlled group was just created (e.g. asset or stock aquisition)

I am guessing that if there was an asset aquisition you ignore prior comp because because the prior 'employer' has ceased to exist, but that is a big guess.

[Alf]

The IRS has talked about the acquisition issues for HCE determinations for years but has not issued guidance yet.

However, if your question does not involve an acquisition, they are HCEs. It doesn't matter if there was a plan in place or not.