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You want to look at the regs under 410(a). I thought there was an example that was almost directly on point. It may be that the example is under 410(b) but it references 410(a).

The common usage (but not 100%) of the term "retirement" usually includes a separation of employment. Most qualified plans are created for the purpose of providing "retirement income". Who says the ER will rehire him? If the ER says (in advance) it will rehire him, both could be participating in a fraud. The statute is quite clear that a plan may permit in-service distribution at NRD. Since the proposed transaction is clearly not NRD, it could strongly imply an intent to circumvent the law. BTW, if this EE is an HCE, a discriminatory practice could magnify the problem.

I suspect that the employer-paid portion of the employee's FICA would be considered income taxable in the year it is paid for the (ex)employee. It usually is if the employee is still employed and the employer is grossing up any type of payment for taxes. And if so, yes you would need to correct W-2s and tax returns. Is there any chance they already met the Soc Sec part of the FICA Limit in the years of the mistakes? Is there any way you could argue the amount is de minimus? I guess I am asking about how large of an issue it is? How many employees are you having to correct. I wonder if you correct too many if that won't send a huge red flag to the IRS based on your EIN such that they might go back and audit the individual employees for more than the 3 years. How many years are you talking in total? But I have to agree that this goes beyond this board. And I wouldn't personally rely on anonymous advice such as I have given above.

For this set of questions, advice from your tax attorney will be much more useful than this Q&A.

My 2 Cents - I don't think the stock market being closed would matter for a non-publicly traded company, as is the case with many ESOP's?