Interesting hypothetical MEP question

[Belgarath]

This is actually hypothetical, although it is easy to see how it could apply in real life.

Suppose you have employer A, who establishes a PS (no 401(k) aspect) plan. A couple of years later, A purchases part ownership in employer B. No CG/ASG, but B signs on as a participating employer in A's plan, creating a MEP under the Employer A's document.

Employee X, who has previously satisfied the 1 YOS eligibility for Employer A, in a given year transfers to employer B. Both plans have a 1000 hr/last day allocation requirement. As per the terms of the document, all service with any and all participating employers is counted. Compensation is determined separately for each employer. 415 is calculated jointly.

So, this employee X works 400 hours with A, (earning $8,000) then transfers to B and works 700 hours (earning $10,000) and is still employed on 12/31. Let's further "simplify" this by postulating that both employers make a 10% PS contribution for the year.

Employee X should receive an allocation of $1,000 in B's plan, as compensation is calculated separately for each participating employer. Is employee X eligible for any allocation in A's plan? Since service for each employer is counted, there's no severance/separation from employment, it would seem that an allocation of $800 would be appropriate, but it "feels" strange. 

Any thoughts? This is for discussion only - not a real situation, so please don't spend a lot of time!

[Paul I]

It seems that the answer will hinge on how the last day rule is written in each plan.  There would be no separation from service as long as the employee is working for a participating employer.  Consider if the last day rule may be written to say that the employee must be actively employed on the last day by Employer A to get an allocation from Employer A, with a similar provision for Employer B.