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What does the service agreement say as to the service provider's responsibilities? Right or wrong, the employer has made the decision that this is no longer an employee, which has created a severance from employment. The service provider should caution the employer about the possible ramifications if there is a determination that a severance of employment did not actually take place, and should recommend that the employer seek a legal opinion. Beyond that, I don't think the service provider owes a duty to investigate the employer-employee relationship.

Why would you want to destroy contributions? ;)

It has always been my understanding that sales tax is included in the otherwise reimbursable amounts. Now, I've only understood that through secondary sources - haven't ever confirmed that by looking in any official guidance.

Your opinion as a lawyer is worth more than my opinion as a non-lawyer, but I would say there is not a duty beyond asking the question of the employer - ask for confirmation that this person is in fact a bona fide independent contractor, and not an "employee." If the employer so certifies, then move on and don't worry about it. I caveat this statement to the extent that the service agreement specifically says or indicates otherwise - but I frankly doubt that it would address this question.

A reason (some) financial advisers are against loans is that they take assets out of funds for which the advisers may be getting paid.

If I understand correctly, employer submitted the funds timely, and RK did not process, but has corrected it, presumably including earnings. I would not do a 5330 in this situation.

hr for me - while a waiver of participation is possible if the document permits, it has to be done when someone is first eligible, so once in a plan you can't 'stop' and suddenly elect out. otherwise it is no longer a 'waiver' but becomes a deferral election which is something different. so the only other option is a plan amendment excluding him from participation going forward. lets see...if I understand the rules correctly, since he cant get a full deduction he must be single, making more than 62000 married making more than 99000 or married filing separately making more than 10000 - I guess this is the only situation that even comes close to making sense and he must have already been working somewhere else (without a plan) for he was putting away 6500/year

Tell him to quit if it means that much to him.