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To nitpick the terminology a little: plans are not part of a controlled group. Employers can be members of a controlled group. I assume what you meant to say is that employers A and B are in a controlled group together, they each sponsor their own plan, and neither plan covers employees of other members of the controlled group. Members of a controlled group are considered a single employer for most purposes. Therefore the employee who left company A and was hired at company B has not experienced a distributable event because they have not had a separation from employment. The fact that they are no longer eligible to participate in company A's plan does not make it a distributable event.

It isn't necessarily a matter of getting out of the obligation, but the details are going to be important. I had a similar discussion with a client not too long ago. "I cant afford the SH contribution" rarely means that they truly cannot get the money to make the contribution. If there is no income, no assets to liquidate, and no line of credit that can be used or established to fulfill the obligation, then it is a different conversation, but most of the time it is more of a cash flow issue. When I had this same conversation with my client, we got to a point where they could at least find the assets to fund the non-owner portion of the contribution. Why? Because the IRS and DOL will ultimately look at the best interest of the participants. If you truly cannot get the cash to fund the contribution, you will be in a much better negotiating position if you can show that you at least found a way to make the non-owners whole. In my case, after the non-owners were funded, the remaining obligation wasn't as impossible to fund when considering that all of the remainder would go to the owners.

If you are going to disgorge the remaining funds and take a no harm, no foul approach, you should give the money back to the third party, not the plan sponsor. A payment from the fund to the plan sponsor will raise questions if there is any audit. (Either a CPA or a government agency).

This wasn't explicitly stated, but assuming OwnerCo is a corporation? Owner receives a W-2 and not self-employment income? You cannot "treat" deferrals as catch-up by election; you have to exceed a limit. $20,000 exceeds the 401(a)(30) limit by $500 so we have $19,500 deferrals plus $500 catch-up. $19,500 deferrals + $5,500 PS = $25,000 which exceeds the 415 limit (100% of compensation) by $3,000 so another $3,000 of deferrals can be reclassified as catch-up. Ultimately we end up with $16,500 deferrals + $3,500 catch up + $5,500 PS = $25,500.

I know this is mostly an old thread. BUT, if you're going to switch DC document software, now is the time to do it.

Exactly. There is absolutely positively nothing wrong with doing a special val. But when you repeatedly say "you'll get your 12/31/19 account value," that causes a problem, or at the very least a perception of a problem. All easily avoidable by anticipating this known event and setting aside cash. Again, not a lawyer, but I'm familiar with the phrase "bad facts make bad law" (or something like that) and the facts here could lead to the perception that you can't do a special val.

IAWMP. Just get the funds out, document how the stock was deposited and trace the proceeds of the sale and put all that info in the plan file. It is money that doesn't belong to the plan, it is more like a banking error than anything else. Sometimes stuff happens, just fix it.

Because the deposit wasnt from the plan sponsor. How can u not?

So many issues beyond the actual special val if we take plaintiffs allegations at face value...

Same here! But I would rather have been wrong and know it, than be maybe right but have no idea.