ADP test in the year of acquisition

[Guest MikeD]

I was wondering if anyone had any insight:

- The assets of ABC Corp. are acquired by XYZ, LLC in April of 2005. ABC Corp. maintained a 401(k) profit sharing plan prior to the asset sale. The Plan used the prior-year testing method and, taking into account contribution rates for the NHCEs, the HCEs of ABC Corp. could have contributed 5% of pay (3% ADP for the NHCEs). XYZ, LLC took over the sponsorship of the Plan at the time of the acquisition.

Is XYZ bound by the prior year testing results of ABC? In other words, are the HCEs of XYZ limited to 5%? Or, because it was an asset sale, is the Plan treated as if there was no prior year (therefore allowing us to assume 3% for the NHCEs and 5% for the HCEs)?

And, for 2006, would XYZ use the ADP of the NHCEs for all of 2005 of just April-December?

Thanks!