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Wait, you mean retirement plans are for accumulating retirement plan assets for participants retirement needs and not just getting a tax deduction for the owner?

David Rigby, good point, but that can be handled by deferring the split-up/spin-off until the dust settles. They can operate the plan as a multiple employer plan until then. Yes, lot's of reasons to dislike multiple employer plans, but this is a case where doing so for 5 minutes (figuratively speaking) may make sense. On the other hand, what are we talking about here? Are there 5, 6, 10 employees, or 100+? If this is a tiny plan with very modest assets I might turn 180 and suggest terminating it.

Good comments here and I think they present an accurate assessment of the market. Yes, HCE is not a complicated determination, but people who do not practice in the compliance area don't always understand the distinction between the dictionary definition of a term vs. the code or ERISA definition. People see the phrase "highly compensated", and assume it doesn't apply to the owners' spouse and/or kids making $25K per year because $25K is not a high wage. Likewise many companies have key employees, but they are not always "Key Employees" as defined in 416, and vice versa.

If all the assets were gone by 12/31 except for the owners, and all the plan doc stuff was up-to-date, I'd charge like $300 to file the final 1-participant plan 5500. Could even do it on an EZ.

I might be tempted to give the owner a choice - use $0 and avoid another plan year, but have all sorts of nasty consequences as you note, or wait until after the end of the year and then pro-rate comp over 10 months...or don't have a short year at all; the others' comp will presumably be self-limited by the acquisition. There is an argument that a self employed individual earns all of his or her income on Dec 31, but I think it is reasonable to pro-rate. Honestly I don't think it is reasonable to estimate it but others may differ.