JohnEPNFP

So hopefully I got your attention. A medical practice agreed to convert their plan from RK A to RK B. The plan has several self-directed brokerage accounts that are offered through RK As recordkeeping system so everything is (was) working fine. Upon notification that the plan was leaving RK A told the Plan Sponsor that all assets in the SDAs would need to be liquidated and the cash transferred to the core accounts to then be liquidated and transferred to RK B. Dr. X, who is a partner / member / owner, but not a majority owner, refused to liquidate his positions because he has a specific Russian ETF that is illiquid and represents a $250k unrealized loss. The fund is actually in the process of being liquidated by the fund company, but there is no known timeframe for when this process will end. The Plan Sponsor still wants to convert from RK A to RK B but is at a standstill due to Dr X's refusal to liquidate his account. Dr. X is not eligible for in-service withdrawals so he can't distribute in-kind shares to an IRA. We have politely told him that he is potentially creating a fiduciary issue since he is taking his personal account into consideration and not doing what is in best interest of plan and other participants. Can anyone chime in with thoughts on how to proceed? If at all? Maybe I shouldn't want this plan, but the rest of the decision makers are great and they are VERY frustrated with Dr. X.

Thank you all. Bill - The policies are owned by the ABC Co. 401k Plan & Trust. These policies predate me by to decades so I am going on the assumption (scary) that since the policies are owned by the plan, they were set up correctly as qualified assets. Belgarath - they did have that options and non wanted to purchase the policies Now I have the pleasure of spending time (hours?) on hold with the insurance company in the hopes to find someone who will listen and understand enough to process these the right way.

Basics: Individual account 401k plan with 4 insurance policies owned by the plan. Decision has been made to surrender these policies for the cash surrender value and invest the proceeds into the individual participant's accounts in the plan. The participant in over 59 1/2 and the plan allows for in-service at 59 1/2. At least one of the insured plans to take an in-service after the proceeds are received and roll them to an existing IRA. The insurance company form indicates 10% of the proceeds will be withheld and sent to IRS. Form also says owner can instruct insurance company to not withhold taxes. This obviously makes it seem like insurance company is treating this as a distribution and not a "transfer" of assets inside of the plan. So even if they are instructed to not withhold any amount for taxes it makes me think they will still create a 1099R. 1) I don't think a 1099 should be created 2) I think they will screw it up. Can someone confirm I am correct in thinking that the surrender and the transfer of assets into the individual account should not be a taxable event nor require a 1099?