Sale of goodwill?

there's  company  A and B. As of 12/31/19 all nhce's of company A "terminated". They were all hired 1/1/20 by Company B.  There are two remaining  hce's ( the two owners). They are not expected to have any ownership in company  B.  The two entities are  still hashing out what to do with company  A (asset sale, etc). The  two owners of Company  A (only two employees)  are expected  to have capital gains from at least the sale of goodwill in 2020. 

Question. Can you count that as plan compensation for 2020 and in so doing make contributions in 2020?

Just clarifying, are you referring to plan sponsored by A?  It appears you want to count capital gains from a corporate sale as employee compensation; does that meet the plan's definition of comp?

On another note, did the owners/HCEs negotiate so that B (or B's plan) will recognize all the A-service?  For example, this would enable the NHCEs to participate in B's plan (assuming there is one) immediately.  If not, perhaps there is still time to do so.   (BTW, if the answer to that question is NO, my response is "shame on you".)

19 hours ago, jmartinrps said:

there's  company  A and B. As of 12/31/19 all nhce's of company A "terminated". They were all hired 1/1/20 by Company B.  There are two remaining  hce's ( the two owners). They are not expected to have any ownership in company  B.  The two entities are  still hashing out what to do with company  A (asset sale, etc). The  two owners of Company  A (only two employees)  are expected  to have capital gains from at least the sale of goodwill in 2020. 

 

Question. Can you count that as plan compensation for 2020 and in so doing make contributions in 2020?

Sale proceeds are NOT earned income. No, you can't count THAT money as compensation. But they can PAY compensation to them for 2020 that would count.

6 hours ago, david rigby said:

Just clarifying, are you referring to plan sponsored by A?  It appears you want to count capital gains from a corporate sale as employee compensation; does that meet the plan's definition of comp?

On another note, did the owners/HCEs negotiate so that B (or B's plan) will recognize all the A-service?  For example, this would enable the NHCEs to participate in B's plan (assuming there is one) immediately.  If not, perhaps there is still time to do so.   (BTW, if the answer to that question is NO, my response is "shame on you".)

I would pretty much always expect that result, but it is up to the new owners of B as to whether they want to do so or not.  They have options, including just counting service with A for eligibility and not vesting.  But it is their decision; I'm not sure the "shame on you" is automatically deserved because there are situations where it would specifically not be desired by the sponsor for whatever their reasons might be.