HCE Determination

[Guest Grumpy456]

N is a wholly owned subsidiary of M on every day in 2005. Both M and N sponsor 401(k) plans--these are two separate plans. Henry works for N and draws $115,000 in pay from N in 2005 (Henry does not work for M).

In 2006, M and N constitute a controlled group of corps until November 2006 when M sells N to V (an unrelated corporation). Coincident with the sale of N to V, M hires Henry. From November 2006 through December 31, 2006 Henry is paid $10,000 by M. Henry is eligible to participate in M's 401(k) plan now that he works for M and does so, contributing $5,000.

As of November 1, 2006, M and N cease to be members of a controlled group of corporations. M still needs to perform an ADP test on its plan.

Is Henry an HCE with respect to M's plan for the 2006 plan year? Henry has never been an owner of M or N. Did Henry have pay in excess of the HCE pay limit in 2005 (the lookback year)? If, for this purpose, the "employer" is the M/N controlled group, then the answer is "yes". If, instead, the "employer" is only M, then the answer is "no".

I need help quick!!! Thanks so much.

[Mike Preston]

I vote yes. No research, though, just gut feel.

[Guest Harry O]

Definitely "yes".

[Guest Grumpy456]

Thanks!!! We did the testing assuming the answer was "yes" so your responses make me feel good about that decision.