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There is no such thing as an "owners 20% deductible limit". The deduction limit applies to the PLAN as a whole. That may be what is confusing the issue The allocation to the owner (and what shows on the 1040) is not limited to the 20% net (25% gross) that would apply to a one man plan (because the one man is the entire compensation so the limit applies to just the one participant).

You have gotten excellent advice; you need a good ERISA attorney to advise the plan. And possibly the best approach is to consider interpleader (where the whole mess is thrown to the court and the plan either pays the money to the court or waits for the court to decide what to do with the money). The plan really does not have a stake in the outcome; the plan knows it has to pay out the funds and is indifferent to who is entitled to it. The ONLY way to be sure of what you do is to have a court tell you what to do. But as noted above, get thee to an ERISA attorney!

Based on my experiences (most often as counsel to the decision-maker) with several situations in which a designated beneficiary killed the participant, I’ll tell you that a plan’s fiduciaries often don’t recognize fully how their decisions and communications can get scrutiny from many directions, including not only the named primary beneficiary, a named contingent beneficiary, a default beneficiary, and the personal representative of the participant’s estate, but also the alleged killing’s prosecution and defense lawyers (because either “side” might perceive strategic advantages or disadvantages that turn on whether a defendant has or lacks a right to get money). Even if the plan’s sponsor/administrator has excellent written claims procedures and long experience with flawless claims-handling, a slayer situation might put them to the test. Also, the plan’s administrator should not assume (at least not without its lawyer’s advice) that even a proven slaying would undo the slayer’s benefit. Unless the plan’s governing document states a provision, there might be no clear rule.

There are several threads about this situation and "killer" statutes. The plan may need a lawyer to advise about the existence and applicability of such statutes. ERISA says to pay the designated beneficiary. ERISA says nothing directly about killer statutes and the statues are state law, which sets up issues about what the plan should do. The plan is not going to be able to rely on what you may learn from this board; the issues are too complicated. The plan should also have a lawyer to advise about the appropriate way to address the claims for benefits that have already occurred. The plan is required to have a claims procedure and the procedure should be followed in response to any request for distribution. Proper handling of the claim is essential to avoid fiduciary liability.

Does everyone who is not from MA assume that people who live here are horrible? Because we aren't . No Rollover money... just a guy who doesn't want to participate in the plan anymore so he wants to take his money. He can't and I told him that. Of course with the internet when people don't receive the answer they like they start "Google-ing". He must have found something and pulled a few snippets from his find that he thought backed up his case so he questioned my answer. For a quick confirmation of my knowledge I posted the question to see if there was anything I missed. That's it. Thanks to all!