New Company formed 1/1/2004; same employees, can I use prior year's wages to determine HCEs?

[Guest jsample]

Old Company was a group of 60 doctors, 80 nurses, and 20 administrative staff. Old Company closed and each doctor group formed new corporations at their own hospital. There were no spin-offs, no stock sale or purchase, simply the Old Company went out of business 12/31/2003.

One of the new corporations would like to set up a qualified plan. The size is small, consisting of 5 doctors, 15 nurses, and 3 administrative staff. In 2003, working for Old Company, many of the nurses made in excess of $100,000.

The plan design would benefit if I could classify the nurses as HCEs in the initial 2004 plan year, based on what they earned in 2003. However their earnings in 2003 were from Old Company.

Is there any type of same desk rule where even though this is a new corporation, the employees remained the same, they are doing the same job, they are working at the same place, and I can use their prior year wages to determine HCEs?

After 2004 it is no problem, as "normal" determination will take place in 2005. It is only in the initial plan year that I am questioning.

Thank you.

[Mike Preston]

I would say the rules indicate those people are NHCE's.

However, the IRS may be more lenient. Consider adopting a plan and submitting, along with a Schedule Q. Since the fee waiver is still in effect, that won't cost anything. Indicate in the cover letter what you want to do and see if the IRS will go along with it. Plenty of time.