I know it is possible to recognize service with a predecessor employer, but, I'm curious if it is alright to recognize compensation with that preecessor employer? Can a high three year average for a DB plan use compensation over all years of service, including those with the predecessor employer? What happens with ex-employees of the predecessor employees if service with the predecessor employer is recognized?

From the 414(s) regulations--


(f) Prior-employer compensation and imputed compensation--(1)
General rule. Solely for purposes of determining whether a defined
benefit plan, as defined in Sec. 1.410(b)-9, satisfies section 401(a)(4)
or 410(b), an alternative definition that includes prior-employer
compensation or imputed compensation satisfies section 414(s) as a
reasonable alternative definition if the definition satisfies the
requirements specified in paragraphs (f) (2) and (3) of this section. For this purpose, prior-employer compensation is compensation from an employer other than the employer (determined at the time that the compensation is paid)
maintaining the plan that is credited for periods prior to the
employee's employment with the employer maintaining the plan and during
which the employee performed services for the other employer. For this
purpose, imputed compensation is compensation credited for periods after
an employee has commenced or recommenced participation in a plan while
the employee is not compensated by the employer maintaining the plan or
is compensated at a reduced rate by that employer because the employee
is not performing services as an employee for the employer (including a
period in which the employee performs services for another employer,
e.g., a joint venture) or because the employee has a reduced work
schedule.
(2) Requirements for definitions of compensation crediting prior-
employer compensation or imputed compensation--(i) General requirement.
The definition must otherwise be described in paragraph © of this
section or must otherwise satisfy the requirements of paragraph (d) or
(e) of this section for alternative definitions of compensation,
including the nondiscrimination requirement in paragraph (d)(3) of this
section.
(ii) Benefit determination. A definition of compensation that
credits prior-employer compensation or imputed compensation must
actually be used to calculate the benefits under the plan. For example,
the definition may not be used to determine whether a defined benefit
plan satisfies section 401(a)(4) unless the benefits for each employee
in the plan are determined using that definition of compensation.
(iii) Provision applied to all similarly-situated employees. A
provision in a plan's definition of compensation crediting prior-
employer compensation or imputed compensation must apply on the same
terms to all similarly-situated employees in the plan. The criteria for
determining whether employees are similarly situated for this purpose
are the same as the criteria for determining whether a plan provision
crediting pre-participation or imputed service satisfies the
requirements of Sec. 1.401(a)(4)-11(d)(3)(iii)(A).
(iv) Legitimate business purpose. There must be a legitimate
business purpose, based on all of the relevant facts and circumstances,
for crediting prior-employer compensation or imputed compensation to an
employee for the period being credited. The standard for determining
whether crediting prior-employer compensation or imputed compensation
satisfies this requirement is the same as the standard for determining
whether crediting pre-participation or imputed service under a plan
satisfies the requirements of Sec. 1.401(a)(4)-11(d)(3)(iii)(B) and
whether crediting imputed service satisfies the additional requirements
of Sec. 1.401(a)(4)-11(d)(3)(iv)(A). However, if the legitimate business
reason for crediting imputed compensation relates to the services the
employee is performing for another employer and the reason satisfies the
standard in Sec. 1.401(a)(4)-11(d)(3)(iii)(B), the additional
requirements of Sec. 1.401(a)(4)-11(d)(3)(iv)(A) are deemed to be
satisfied. For example, if an employee becomes employed by another
employer as a result of a merger, acquisition or similar transaction
with the other employer and imputed compensation is credited to the
employee while the employee is performing services for the other
employer, the crediting of imputed compensation to the employee
satisfies the standard in Sec. 1.401(a)(4)-11(d)(3)(iii)(B). Thus, under
that example, crediting the imputed compensation to the employee is
deemed to satisfy the additional requirements of Sec. 1.401(a)(4)-
11(d)(3)(iv)(A), even if the employee is not performing those services
under an arrangement that provides an ongoing business benefit to the
employer maintaining the plan.
(v) No significant discrimination. Based on all of the relevant
facts and circumstances, crediting prior-employer compensation or
imputed compensation must not by design or in operation discriminate
significantly in favor of highly compensated employees. The standard for
determining whether crediting prior-employer compensation or imputed
compensation satisfies this requirement is the same as the standard for determining whether crediting pre-participation or imputed service
satisfies the requirement in Sec. 1.401(a)(4)-11(d)(3)(iii)© and
whether crediting imputed service satisfies the additional requirement
of Sec. 1.401(a)(4)-11(d)(3)(iv)(B).
(3) Reasonable method--(i) General rule. Any reasonable method may
be used to determine the amount of prior-employer compensation or
imputed compensation provided that the requirements of paragraph (f)(3)
(ii) or (iii) of this section are satisfied, whichever is applicable.
(ii) Requirements for prior-employer compensation. Prior-employer
compensation credited to an employee for a period that an employee is
performing services for another employer must be compensation for the
employee from the other employer (or be based on the employee's basic or
regular rate of compensation from the other employer) for that period.
In addition, prior employer compensation credited to an employee must
not exceed the amount of compensation from the other employer that would
have been included under the definition of compensation in effect for
that period for compensation from the employer maintaining the plan.
Reasonable assumptions may be made in determining the amount of
compensation received from another employer for a period that would have
been included under the definition of compensation in effect for that
period for compensation from the employer maintaining the plan.
(iii) Requirements for imputed compensation--(A) General rule. The
amount of imputed compensation credited to an employee during any
period, when combined with the amount of any actual compensation being
included, must not exceed an amount that, based on all of the relevant
facts and circumstances, is reasonably representative of the amount of
compensation that the employee would have received and that would have
been included under the definition of compensation in effect for the
period if the employee had continued to perform services for the
employer during that period at the same level as the employee was
performing before the employee stopped performing services or changed to
a reduced work schedule. The relevant facts and circumstances include
the compensation that the employee was receiving immediately before the
employee stopped performing services or changed to a reduced work
schedule, and, if applicable, the rate of compensation in effect while
the employee is not performing services or has a reduced work schedule
that is applicable to the employee's specific job grade immediately
before the change occurred.
(B) Imputed compensation from another employer. Imputed compensation
credited for a period that an employee is performing services for
another employer is deemed to satisfy paragraph (f)(3)(iii)(A) of this
section if the amount of compensation credited satisfies the
requirements of paragraph (f)(3)(ii) of this section for prior-employer
compensation. Thus, for example, the amount of imputed compensation
credited to an employee for a period that the employee is performing
services for another employer is deemed to satisfy paragraph
(f)(3)(iii)(A) of this section if the amount credited is compensation
for the employee from the other employer (or is based on the employee's
basic or regular rate of compensation from the other employer) for that
period, and the amount credited does not exceed the compensation from
the other employer that would be included for the employee under the
definition of compensation in effect for that period for compensation
from the employer maintaining the plan.
(4) Special nondiscrimination rule for safe harbor definitions. If a
definition of compensation crediting prior-employer or imputed
compensation is otherwise described in paragraph © of this section,
and the prior-employer compensation or imputed compensation credited
satisfies the requirements of paragraphs (f) (1), (2), and (3) of this
section, then the definition is deemed to satisfy paragraph (d) of this
section (i.e., it is deemed to be nondiscriminatory).

Thank you. Wow, did you type all that? I really appreciate it.

just cut and pasted from the regs on-line.

Look for the reg here: http://www.access.gpo.gov/nara/cfr/cfrhtml...26cfrv5_00.html