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The problem with a SIMPLE is that it has to be the sole plan for the year by the employer, and since "employer" refers to the controlled group, they've already got one.

This is covered by Code §402. §402(c)(1) says the distribution of property paid in an eligible rollover distribution (ERD) is not taxable if the property is transferred to "an eligible retirement plan" - and (c)(3) provides 60 days to do so. Treas. Reg. §1.402(c)-2 fills in many of the gaps (in a convenient Q&A format) and provides in Q&A-1: I don't see any wording regarding "another" eligible retirement plan. The cited sections above, Code §402(c)(4) and (c)(8)(B), simply refer to "a qualified trust". See also §1.402(c)-2, Q&A-2 and Q&A-11. I don't know that I saw any actual suggestion above that the distribution itself is not an ERD, but assuming it is and the distribution is bona fide, then I don't see any prohibition against rolling back into the plan from which it was initially distributed. (Indeed, this also seems good policy - let them change their mind and keep their plan balance intact.) Rolled over or not, he should get a 1099-R and have 20% withheld. Note: The language used for Roth accounts is different. Per Code §402(c)(8)(B):

First, you have a control group, so if the employee of company 2 is non-excludable then you have a coverage (and nondiscrimination) failure in company 1 plan. 1099 person is a contractor, not an employee, and cannot participate unless (s)he adopts the plan as a participating employer - which creates a multiple employer plan. I do not think a SIMPLE works, I'm not entirely sure because I do not work with them but would be surprised if the rule prohibiting any other plans did not apply to the control group. If they want dirt cheap admin for employee then maybe a SEP, but that would also be a control group plan that applied to owners and keeping 401k just for them does not work. They can't give the owners a Cadillac and provide a Yugo to their employee. They can skimp on admin cost across the board and get simplistic same level benefits across the board, or they can adopt a program that skews as much to the owners as legally possible for a reasonable employee and administrative cost.

Just received a query re paying out based on a small estate affidavit and this thread was a gold mine. Peter, thanks for kicking it off and for furthering the conversation.

You would treat it as a reduction to the value of benefits expected to be paid out. The instructions for the standard termination filing discusses the election to forgo receipt of benefits (don't call it a "waiver") for line 7 of the EA-S, under the heading of "Plan Amendments."

One more thought -- ethical and practical issues. For example, did you ask about other companies that might be in the controlled group, but the client lied to you, which you only found out about later. I actually had that happen to me once and it was not a pleasant experience -- I'll leave it at that.

First you say multiple companies of which the client is 100% owner, and then you say just two, with the client owning 100% of one and 50% directly of the second. This is as I understand you. Facts actually matter, so gather all the facts. Then, if necessary, read the controlled group code and reg provisions, including the attribution rules. You may need to dig into other IRS "guidance" and the case law. This could be a very messy situation, but hopefully not.

Timing of the divorce is relevant. Also, have they had any minor children during this time?

We’ve been discussing these “in-marriage QDRO” issues assuming the retirement plan’s administrator somehow knows that neither (or none) of the State court’s litigants asked for an annulment, divorce, separation, or child support. But for many State courts that might issue an order for which a would-be alternate payee seeks a plan’s QDRO treatment, an order might recite that the order “is made pursuant to a State domestic relations law” and “relates to the provision of marital property rights to a spouse”, and might state nothing that would reveal to the retirement plan’s reader that no one had asked for an annulment, divorce, separation, or child support. If an order like that (and no other information) is submitted to the plan’s administrator, is it proper for the administrator to treat the order as a DRO and, if it meets the plan’s further conditions, a QDRO?

Yes, the key is that the terms be spelled out in the written obligation. To see the current conditions, skip to the last page. Amendment to Prohibited Transaction Exemption 80–26 (PTE 80–26) for Certain Interest Free Loans to Employee Benefit Plans, 71 Fed. Reg. 17917, 17920 (Apr. 7, 2006) https://www.govinfo.gov/content/pkg/FR-2006-04-07/pdf/E6-5075.pdf Consider how the loan will be reported in the employer’s financial statements. Consider how the obligation will be reported in the plan’s financial statements and Form 5500 report. In both, it might be a related-party transaction (even if it is an exempt prohibited transaction). {The underlining is not mine.}

The Plan that merges disappears on 10/1 and has a short plan year, yes? If so 2.5 after months is the refund deadline. If the Plan terminates you may have had created a short testing year but unless you distribute all assets you haven't created a short plan year so 2.5 months after the plan year ends.

I'm assuming you mean a 6/30/21 PYE timely filed on 4/15/22? In my experience, the DOL usually sends the 45-day correction notice for a timely filed 5500 with no audit attached. While I understand either IRS or DOL can penalize for an incomplete return, the IRS going directly to penalties does seem like a deviation from prior practice and might rule out one of the "standard" options for a late audit that it sounds like was used here. In that case, DFVC for the whole filing may be safer, particularly if DFVC can avoid IRS penalties as well. We usually end of up with a small handful of these situations each year, and will this year, so would be curious to hear others' input as we get close to the filing deadline.

I think I see this differently. The 5500 instructions defines "active participant" as follows: ******************* 1. Active participants (i.e., any individuals who are currently in employment covered by the plan and who are earning or retaining credited service under the plan). This includes any individuals who are eligible to elect to have the employer make payments under a Code section 401(k) qualified cash or deferred arrangement. Active participants also include any nonvested individuals who are earning or retaining credited service under the plan. ******************* Only reference is to employee service and not dependent on having benefits in the plan. So a profit sharing plan where a participant never got a contribution allocation is a participant for 5500 purposes. I've been doing it this way.