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This smells funny. As mentioned by @Bri, what is the supposed advantage of using an IRA vs. a plan trust? Why take the action of removing/terminating? As we have seen before, sometimes it's because of the "brother-in-law" influence. Is someone suggesting this course of action because the "suggester" might have a possible benefit? If you want to be an "order taker", just do what the plan owner says; if you want to be a consultant, ask questions.

Perhaps the plan is subject to 5500-EZ requirements if assets aren't rolled out?

QNECs and QMACs are 100% vested contribution made to pass the ADP or ACP test and are subject to the same withdrawal restrictions as elective deferrals if I remember correctly. They sometimes have the same allocation rules are as PS/non-elective contribution but often the document has different allocation conditions to optimize the allocation so read the document. QNECs and QMACs used in the ADP/ACP test can't be used in your 401(a)(4) testing with other PS contributions but can be used to satisfy TH minimums if that's a concern.

CuseFan is correct, there is no prohibition and it is reported as taxable compensation to the employee. But first, read the document/agreement. It is not uncommon for the document/agreement to contain a 409A Gross-Up Payment clause spelling out terms and conditions of such a payment. For example, you may find provisions specifying timing of the gross-up payment and the tax year of the individual in which the gross-up will be paid and be taxable income, specifying how the gross-up will be calculated, specifying obligations of the individual to work with the company to contest the claim or to cooperate with the company's legal counsel, and other related details.

I thought it was an April Fool's joke. Two cents?!!!!!!!!!!

How, when and why $0.02? Personally, if it's been $0.02 since 6/30/2022, I would treat as zero and file final return for 2022 by 4/17/2023. Otherwise you have a 2022 full year filing due 7/31/2023 and a 2023 final year filing due 7 months after closeout. And what would you show for 12/31/2022 and 1/1/2023 assets? $1? $0.02 rounds to zero. I think practicality and reason should prevail here. I would not like to have the discussion where the client is told they're getting charged for another 5500 filing because $0.02 was left in the account.