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Swimming, you mention: “The [plan-owned] company so far has been quite successful[.]” If the participant who has employer securities allocated to her plan account believes the corporation’s business will continue to grow, she might prefer to own the corporation’s shares outside the plan so she can get capital-gains tax treatment for future growth. Likewise, she might prefer that ownership of the shares become unburdened by ERISA and other constraints that govern the retirement plan. The plan’s fiduciaries might prefer to unwind, before the beginning of the first plan year for which the plan’s administrator must engage an independent qualified public accountant to audit the plan’s financial statements and related reporting, anything an IQPA might view as possibly a nonexempt prohibited transaction. If you are, or your investment-adviser firm is, or might become a fiduciary regarding the retirement plan, you might prefer to steer clear of potential situations in which you might have a cofiduciary responsibility to remedy another fiduciary’s breach. ERISA § 405(a)(3), 29 U.S.C. § 1105(a)(3) http://uscode.house.gov/view.xhtml?req=(title:29%20section:1105%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1105)&f=treesort&edition=prelim&num=0&jumpTo=true None of these observations is advice. I have substantial experience in unwinding ROBS transactions. If the ROBS-capitalized business is successful, a carefully designed unwind often improves the owner’s business planning and personal financial planning, including tax treatment.

When you have a Controlled Group or Affiliated Service Group, there is a sponsoring employer and adopting employer(s). The 5500 is prepared under the name of the Sponsoring Employer, and the filing is treated as a single employer filing, even though it may be covering more than one employer. This goes for EZs as well. If there are no common-law employees in either entity and the only employees are spouses or partners, you can file an EZ. Code 3H in the Characteristics codes identifies this as a Controlled Group or Affiliated Service Group. If combined assets are under $250K, there is no filing requirement.

A footnote. If a plan does not provide for something that is legal, that is, would not disqualify the plan or result in a PT, remember that you may always amend the plan to fix whatever needs to be fixed before a distribution (or plan termination). Make the amendment first; do not try it "retroactively."

Thanks all for your comments and insights. It seems as though adding the 5558 electronic filing option would be such an easy thing to do (heavy sigh) - I suppose that's why it's not in place yet !

Electronic filing allegedly is coming soon. We don't know all of the details. Some speculate that each plan may need to sign in to EFAST2 to file the request. (Batch processing by service providers would be much more efficient.) There also is some speculation about what documentation will be available to the plan to confirm the extension was accepted. Again some speculate that an AckID will be provided and that would be sufficient. There are others who think the IRS will send out letters to each plan notifying that the extension was approved (and no letter means no extension). May logic and reason prevail. (Cue the scene where Lucy assures Charlies Brown that she will not pull the football away when he tries to kick it.)

If it wasn't withheld from payroll then it isn't a deferral. It should be returned to the owner, adjusted for earnings. The earnings would be taxable.

Are we certain it was a genuine Roth contribution, and not a voluntary after-tax contribution? Roth contributions are 401(k) contributions, so they have to be made by the employer with money withheld from the employee's paycheck. VAT, on the other hand, is money contributed by the employee and generally doesn't need to come directly out of the employee's paycheck. If this was truly a Roth contribution, then what happened to the money that was withheld from the employee's paycheck? Is it still sitting in the employer's bank account?

The State of Confusion?

Fair market value might matter. A loyal, prudent, and impartial fiduciary might not sell a retirement plan’s contract for less than adequate consideration, which might be the contract’s fair market value. Or if the plan distributes the contract to the participant, fair market value might affect the amount the plan trustee tax-reports on Form 1099-R. Showing attention to the valuation methods described in the Internal Revenue Service’s guidance might help show that the plan trustee acted in good faith.

Also see rev. Proc. 2005-25 which defines fair market value of the policy for this purpose. It may be more than the cash surrender value.

A prohibited-transaction exemption (which is available regarding both ERISA §§ 406-408 and Internal Revenue Code § 4975) sets a playbook for a plan’s sale of its life insurance contract to the participant/insured. Prohibited Transaction Exemption 92-6 (PTE 92-6) Involving the Transfer of Individual Life Insurance Contracts and Annuities from Employee Benefit Plans to Plan Participants, Certain Beneficiaries of Plan Participants, Personal Trusts, Employers and Other Employee Benefit Plans amended, 67 Federal Register 56313 (Sept. 3, 2002) https://www.govinfo.gov/content/pkg/FR-2002-09-03/pdf/02-22376.pdf Here’s the key condition: “the amount received by the plan as consideration for the sale is at least equal to the amount necessary to put the plan in the same cash position as it would have been had it retained the contract, surrendered it, and made any distribution owing to the participant on his vested interest under the plan[.]” Or, if the plan provides (or at least does not preclude) a distribution of property other than money and the insured participant is entitled (perhaps by having reached a specified age) to a distribution, the participant might claim his distribution. The plan’s trustee would tax-report the distribution on Form 1099-R.

The transaction you described is basically what needs to happen. What I would recommend is that the insurance guy contact his home office’s advanced consulting office and get the exact instructions on what to do. If he refuses, tell the client to hire an ERISA attorney. Lots of possible liability sitting here. wcp

Don't think that's allowed.