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A SH plan terminating mid-year remains safe harbor for the short final year if the termination is in connection with a 410(b)(6)(C) transaction or the employer incurs a substantial business hardship. If you don't meet one of those criteria, you have to satisfy the rules for reducing or suspending the SH contribution in 1.401(k)-3(g), which means it is not safe harbor for the short final year. You said he isn't planning to sell his business. Will he be selling the assets of the business? See 1.410(b)-2(f). If not and the SH is important, he should consider terminating at the end of the year.

First plan year: More than 99 participants(**) at the beginning of the year: 5500(*). 99 or less: 5500-SF(*) After the first year, use 80-120 rule. That rule says, if you file an SF, you can continue to do so until the BOY participant count is under 120. When the participant count (again, at BOY) goes over 119, then you must file Form 5500 with an audit. If you are filing a 5500, you continue to do so until the BOY participant count goes below 100; then at 99 or less, you can shift to and SF. However, you can still file the 5500 if you want, until the participant count goes below 80; then you HAVE to file an SF. (*) When I say 5500 or 5500-SF, I really mean large plan filer and small plan filer, respectively. Large plan filers must get an independent auditor's report and have it attached tot he 5500 filing. Small plan filers, as long as they qualify for audit relief, do not. However, a small plan filer may have to file From 5500 (with Shed I instead of Shed H and the audit) due to a variety of reasons. (**) Participants does not mean Employees. A participant for the 5500 series means anybody who was eligible for any component of the plan at BOY or EOY. PLUS any former Employees who have a benefit due under the plan. This includes eligible participants who may choose not to contribute and may have a zero balance. An Active participant is simply someone who was still employed at BOY and/or EOY. I have a client that has about 950 employees, but only 7 participants because the vast majority of employees work less than 1,000 hours a year and thus never became eligible for the plan.

Generally a plan with more than 100 participants on the first day of the year is required to file the long-form 5500. There is an exception for plans with no more than 120 participants; if they were eligible to file 5500-SF in the prior year then they may continue to file 5500-SF. Participants is generally the sum of active participants (current employees who have met the plan's minimum age and service conditions), plus inactive participants (terminated employees with vested balances, retirees currently receiving payments, and beneficiaries of deceased participants). You should read the instructions to the 5500-SF for more information. Specifically the "Who may file 5500-SF" section and the instructions for line 5.