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If you can get all of the participants to repay their distributions back to the plan, it could probably be undone. You would treat it as an overpayment and correct under EPCRS, since the distributions were made in the absence of a distributable event. However it might be simpler for the new employer just to start up their own 401(k) plan, and have the participants roll over their loans into the new plan. Since it was an asset sale there should be no successor plan issue.

First, you have until the businesses tax filing deadline including extensions to remove excess SEP IRA contributions. Second, you may not have to remove the excess contributions. Call Schwab and explain the problem. Their SEP IRA is a prototype SEP IRA which can be maintained with a 401k for the same tax year. I believe (with verification from Schwab), you can adopt a prototype SEP IRA, rollover the 5305-SEP IRA balance to the Schwab prototype SEP IRA, adopt a one-participant 401k and make the employee deferrals. Then you can decide if you want to rollover the SEP IRA to the one-participant 401k and even whether to make future employer contributions to the SEP IRA or 401k (subject to the annual addition limit either way). Note: The sooner your one-participant 401k year-end balance reaches $250K, the sooner you will have to file Form 5500-EZ. However, there maybe other valid reasons to rollover the SEP IRA balance and make future employer contributions to the one-participant 401k.

1. Set up the new 401(k) which invalidates the Form 5305-SEP as you mentioned. 2. Take a corrective distribution of the 2021 failed/excess contribution (and applicable earnings) from the SEP-IRA account by 4/15/2022.

If the plan is ERISA-governed, no. ERISA § 408(b)(1) “exempts from the prohibitions of section 406(a), 406(b)(1) and 406(b)(2) loans by a plan to parties in interest who are participants or beneficiaries of the plan” only if, with further conditions, “such loans [a]re available to all such participants and beneficiaries on a reasonably equivalent basis[.]” 29 C.F.R. § 2550.408b 1(a)(1)(i) (emphasis added) https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-F/part-2550/section-2550.408b-1#p-2550.408b-1(a)(1)(i) Otherwise, a participant loan is a nonexempt prohibited transaction.