Determining HCEs of Acquired Businesses (Posted April 8, 2004) Technical Tip 118: The following question and answer were from the IRS Q&A Session at the 2002 ASPPA Annual Conference: A client maintains a 401(k) plan. In 2002, they acquire a company through a stock purchase and brought new people into the plan. For the new people who just came in as a result of the acquisition, how do we determine if they are HCEs? Do we look at their compensation from the prior year even though they worked for someone else? Response: In a stock purchase, it would be reasonable to base the HCE determination on compensation with the purchased company. In asset purchases, it would be reasonable to not tack on the prior compensation. View all Tips © 2008 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.