HCE definition when employers terminate ASG/CG relationship

[Bird]

Companies A and B are part of an Affiliated Service Group. A sponsors a plan and B is an adopting employer.

Effective 2005, the ASG status will end by virtue of change of ownership and business relationship. B will start its own plan, and assets for the employees of B will be spun off from A's plan to B's plan.

If B has non-owner employees who earned more than $90,000 in 2004, will they be HCEs in 2005?

(I think not but that's more of a guess than anything.)

[Blinky the 3-eyed Fish]

Bird, B still was a company in 2004, so if an employee made over $90,000, then the are (or potentially are) HCE's in 2005. The question is what compensation to consider if any of the B employees also worked for A in 2004. I could think of arguments both ways 1) to include A's compensation too or 2) to just consider B's compensation. What I don't know is what the IRS thinks.

[Alf]

Yes, especially because of the spin-off. There is no answer from the IRS on this, but logic (to me) dictates that this is the same "employer" and ASG compensation should count. At best, you are only going to get the break for one year anyway.

[Bird]

Bird, B still was a company in 2004

Oh yeah...what WAS I thinking anyway?

Thanks to both.