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Respectfully disagree with Mr. Starr's flat "No". If your client is at least moderately aggressive and if the plan can be amended and the 2019 safe harbor notice distributed "quickly" (next couple of days) I would not hesitate going for it. Remember the IRS position that 30 days advance notice is deemed reasonable doesn't mean that a notice given 20 days in advance is automatically unreasonable.

Yes, but any potential corrections, additional contributions, etc. that may be required as a result of the audit findings would still need to happen through the plan/trust and what gets adjusted in a prior year could change something in a current year. However, if you terminate effective 12/31/2018 but don't distribute until sometime later in 2019, hopefully the audit will have been resolved and necessary adjustments made to be able to do that.

What does the plan say?

Since the Plan provides no further explanation of the meaning of "returns to employment with the Employer," it is the Plan Administrator's responsibility to interpret the meaning of the phrase as applied to these facts. The PA should document its reasons for interpreting the Plan document one way or the other and then apply this provision consistently going forward. That said, I agree with the other comments here that the participant will not have returned to employment until they show up for work. Until that day, the participant and the employer both presumably have the power to change their mind (at-will employment). In addition, and I base this on my recollection of the ERISA Committee report, pension payments are meant to be a replacement for wage payments. Therefore, until the day the participant is returned to the payroll, it is justifiable to make pension payment since it will be paid for its intended purpose.

What about an administrative policy that accounts less than $____ will be forfeited for fees...

Perhaps the TPA and the plan sponsor can recognize practicality: pay it all, and get the sponsor to pay the distribution fee.

With a $5 balance why not just cash him out and be done?