Single Employer Plan to Multiple Employer Plan

[buckaroo]

Two employers in a controlled group (100% common ownership). Effective 1/1/2017, a large portion of the second employer was sold so that no controlled group and/or affiliated service group relation ship exists.  Plan is now a multiple employer plan.  Questions about 2017 testing (just trying to be ready): 

1) How are the HCEs to be determined?  My assumption is that the HCEs would be determined by looking back at the compensation earned in the prior year when it was a single employer plan.  However, I cannot find anything definitive to back this up.  Does anyone have supporting documentation?  If this is not correct, one alternative I thought of is do we need to look at the compensation earned by each individual employer when they were in a control group. 

2) The plan utilizes the prior year testing method for ADP/ACP testing.  My guess (and it is only a guess) is that the prior year NCHE % would be determined by looking back at prior year testing and using that % for each of the two tests.  However, I cannot find anything definitive to back this up.  Does anyone have supporting documentation?  If this is not correct, one alternative I thought of is do we need to calculate a weighted average of some kind?   

Thanks in advance. 

[rcline46]

Also, your document has to be amended to be a MEP.

In my opinion, since each employer is tested separately in a MEP, I would do the look back for each one separately.

[CuseFan]

if company A and company B where separate with no overlapping employees pre-transaction, i think it would be reasonable to look back at them separately for HCE determination and similarly for NHCE ADP or, as suggested, using the prior NHCE ADP for both in 2017 testing. I don't think there is any regulatory guidance, so you do what is reasonable and document a logical case for why - as long as it does not result in abuses and the HCEs benefiting substantially more than they were otherwise benefiting before, I don't see the IRS challenging it. Also, if the plan isn't amended to change coverage or benefits, don't you have the option to test as one plan under the M&A transition rules? I thought those ran both ways - acquisitions and divestitures.