Look-Back HCE Status in First Plan Year

[Guest LWYRRCM]

In first year of 401k plan, who are the HCEs if you have no 5% or more owners?

Does plan get free pass on adp/acp testing?

[LCARUSI]

Even though it is the first plan year, you would still determine HCE status using the standard methods (even though the plan did not exist in the lookback year). So just because it is a new plan doesn't mean necessarily that you have no HCEs.

If you do the HCE determination and you really don't have any HCEs for the first year(no 5% owners and no one over $80K in the previous year with the company), I guess you pass on the basis of there being no HCEs benefiting under the Plan for the Year.

[Guest LWYRRCM]

Thanks for your answe.This the deal--brand new coporation, 1st year of existence is 1998, so no employees in '97 look-back year, so no hces from 80k test in '97. its public company, so no 5% owners. It was spun-off in june, but is not member of brother-sister controlled group with spinner corp, so as i look at it, no employer aggregation under 414(B), therefore not a successor plan. Free-ride on adp/acp in "98.

[MWeddell]

I'm not sure I agree. You say that the plan sponsor was spun off and is not now part of the other controlled group, but that sounds much different from saying that this is a new company with no prior year compensation paid to these employees.

[Guest LWYRRCM]

The plan sponsor was spun off and was not in existence as a seperate employer until 10 days prior to the spin-off. Are you hinking that will create some type of successor plan status and, if so, where and what is the definition of "successor" for this purpose?

[Guest LWYRRCM]

Follow-up comment to prior message--under the benefits services and liabilities agreement between the spin and spun companies, the spun company agrred to estabish a brand new 401k plan the day after the spin-of and the spin co maintained sponsorship of its 401k plan throughout.

[LCARUSI]

To LYWRRCM -

Definition of successor plan and other relevant definitions for this discussion are contained in IRS notice 98-1 which can be referenced online in BenefitsLink.

Click here: IRS Notice98-1

[This message has been edited by LCARUSI (edited 11-13-98).]

[MWeddell]

What I'm thinking is that this company was for a time part of a larger controlled group so that compensation paid by the "employer" includes compensation paid by any member of that controlled group until the point where this company ceased to be a member of the controlled group. I think you do have prior year compensation.