Plan termination - short year or not?

[Belgarath]

Having a brain cramp. Suppose an owner of an LLC taxed as an s-corp sells the business. Plan is a calendar year Safe harbor plan. My understanding is that all employees terminated employment as of the sale date. (Is an LLC that is taxed as an S-corp automatically "dissolved" as of the sale, or does it continue to exist as a legal entity, until "dissolved"?) If the former owner wants to maximize contributions, do you see any problem with having the plan termination date of 12/31/2017, so there is no short plan/limitation year, and therefore no prorating of limits?

[Bird]

Assuming it was an asset sale, and not a purchase of the entity itself by the buyer, the old entity can continue through 12/31.  No problem at all.

[A Shot in the Dark]

Depending upon the length of the revenue stream generated by the sale the assets, the employer may choose to keep the Plan in existence well beyond the end of the the current year.

For example, may be the asset purchase agreement is structured as an installment sale, whereby the payment for the assets is stretched over more than one year.  Perhaps the client would like to continue to use the plan.

 

 

[Mike Preston]

Not if the sale proceeds are used to fund the plan...