Multiple ER question

[fiona1]

Here is the situation - Multiple ER plan with 2 employers (Company A and B). 1/1 plan year.

John works for Company A from 1/1/06 to 8/15/06 and earns $80,000. He works for Company B from 8/15/06 to 12/31/06 and earns $70,000.

He works for Company B from 1/1/07 to 12/31/07.

2 questions:

1. HC determination for the 2007 plan year (must use 2006 compensation for determination). Do you look at the compensation he earned with Company B (which would make him NHC) or do you have to include all the compensation ($150,000 which would make him HC).

2. For the 2006 plan year there is an ADP test for Company A and a sepearte ADP test for Company B. John will be on both tests since he worked for both employers. What compensation will be used on these tests? $80,000 on the Company A test and $70,000 on the Company B test? Or would each test use compensation of $150,000 to determine his deferral percent?

Thanks for any help!

[J Simmons]

#1. A and B are unrelated ERs, in the ERISA sense, but sharing a plan. The reason for separate testing ought to lead to the conclusion that the categorization of EEs for those separately applied tests ought to be determined separately. I think this consistency is the better argument in the absence of IRS guidance (I don't think there is any). So I'd say for 2007, John is not an HCE in B's testing.

#2. For the same reasons as expressed above, I'd use John's $80,000 compensation from A in A's 2006 ADP testing and John's $70,000 compensation from B in B's 2006 ADP testing.

[QDROphile]

Help you did not ask for specifically: Has anyone thought about securities law compliance? I am assuming you have what you say, a multiple employer 401(k) plan.

[Below Ground]

#1. A and B are unrelated ERs, in the ERISA sense, but sharing a plan. The reason for separate testing ought to lead to the conclusion that the categorization of EEs for those separately applied tests ought to be determined separately. I think this consistency is the better argument in the absence of IRS guidance (I don't think there is any). So I'd say for 2007, John is not an HCE in B's testing.

#2. For the same reasons as expressed above, I'd use John's $80,000 compensation from A in A's 2006 ADP testing and John's $70,000 compensation from B in B's 2006 ADP testing.

I fully concur and agree with post by J Simmons.