Spinoff - new company asset sale - HCEs

[Lou S.]

Controlled Group A (a controlled group with 3 companies X, Y, and Z is downsizing) and sells the assets of company X to Employee M who is employed by CG A but has no ownership in any of X, Y or Z. This happens December 2013.

Employee M starts a new Company B where he is 100% owner and hires all of the employees of company X on 1/1/14.

Company B establishes a plan 1/1/14 with identical provisions of Plan A and grants past service with CG A to all employees for eligibility and vesting.

Controlled Group A spins off the employees of company X in Plan A into Plan B.

No employee in Company B earned over the comp limit in 2013 to be an HCE of Company B in 2014 but several who were hired by Company B on 1/1/14 earned over the comp limit in CG A in 2013 and would have been HCEs in CG A but for the asset sale and transfer to Company B.

Both plans A & B and all tax payers B, X, Y & Z are on the calendar year.

Am I correct that Employee M is the only HCE of Company B in 2014? There are no other more than 5% owners employed by B.

[QDROphile]

I think your conclusion is correct. None of the compensation from the original controlled group employer should be considered with respect to B, so there are no HCEs based on compensation for the first year of B's plan unless there is an employee with compensation in December 2013.

[Lou S.]

No they all went on the new payroll in 2014. They remained on the old payroll through the last pay period in 2013.

Thanks.