The purchased company's plan and coverage

[AlbanyConsultant]

My client "P" was purchased by "S". P still exists and pays its remaining two employees, both NHCEs (one was the former owner of P until it was purchased) and has a 401(k) profit sharing plan. S has no plan at all.

I'm trying to figure out if I'll actually need to pry S's information from them (they've been terribly tight so far) in order to run coverage tests (the grace period is running out). Won't it automatically pass because no HCE's are benefitting? I'm just having trouble wrapping my head around this. Thanks.

And... just thinking ahead, it will cause a world of complications if S decides to put in a plan just for the S (that is, those who don't work at P) employees, right?

[Mike Preston]

If the plan truly covers NHCE's only, then no discrimination testing will fail. However, you will want to confirm that the individual who was a former owner doesn't fit the definition of HCE somehow, someway. Best to get an attorney's opinion on this one.

If S puts in a plan just for the employees of S, you must run coverage and non-discrimination tests based on those not employed by S receiving nothing. That happens all the time and does not, in and of itself, represent an extraordinary challenge.