Multiple Employer Plan Spin-Off and Testing

[constance_james]

I looked every where for this so sorry if this is a repeat.

The employer was part of a PEO, Multiple Employer Plan and has spun off into their own plan 401(k) plan.  Is the new plan considered a successor plan, and therefore cannot use the use the 3% Prior Year average available for the first plan year?  Or is the new plan considered a new plan?

[Alonzo Church]

Per the regulations (1.401(k)-2(c)(2)(iii) "a plan is a successor plan if 50% or more of the eligible employees for the first plan year were eligible employees under a qualified cash or deferred arrangement maintained by the employer in the prior year."

For most purposes, a pre-SECURE Act MEP is treated as single-employer plan maintained by an employer with respect to employees of a specific employer. So I think you use the ADP of the year before spinoff.