Lou S.

The advantage is it is done and they can open a trust account and fund right away. The disadvantage is as David D says, the client can no longer change their mind once they sign the document.

The correct way to do it is as David D suggests. Resolutions and amendments to terminate the plan and file a first and final $0 5500-EZ. How fmsinc describes it is likely what most people do. Just pretend like the plan never existed. No one ever elected to defer, the sponsor never funded plan. It's not the correct course of action but the odds of the IRS auditing a solo-k that never put any money into and presumable never took any tax deductions is probably quite small. But if you are a member of one of the alphabet soup organization you are problem subject to one or more code of ethics standards. The penalty for plan disqualification wouldn't be anything since there is no money so no disallowance of deduction or tax on trust income since there is none, but there is potential penalty of $250/day up to $150,000 should the IRS decide to press the issue. I'm not sure they would but they could.

I believe that is in the case where the required minimum contribution exceeds the sole-props Schedule C net income, and not all cases where the employer simply makes a contribution larger than the maximum deductible amount.

I agree with Paul's suggestions. Take reasonable precautions to prevent fraud since it is already suspected in this case.

And remember as WCC notes it is FICA wages which are W-2 Box 3. Those could be different from Box 1 wages, 414(s) compensation, 415 compensation or eligible plan compensation.

Speculating but if you filed PBGC premiums and not a 5500 that might trigger a response from the PBGC but I don't know for sure. You could discuss with your client reaching out the PBGC directly with a copy of the e-mail asking the PBGC to verify the authenticity. If it is from the PBGC, and there are no missed MRCs you could let the PBGC know their information is incorrect. If there actually are missed MRCs, you could file the required Form 10(s). But if there are also still missing 5500s, the plan may have some additional issues to fix.

Since you said they are still working (and presumably now getting W-2 wages) and are not a 5% owner in their 1st RMD year, then they are not required to take a 2025 RMD unless they separate service before 12/31/2025. if I misunderstand the facts, that could change things.

Employee Locator — Best Of The Best Employment Screening! and PenChecks Trust - A Leading Provider of Comprehensive Retirement Plan Payment Processing Services – and more I found both easy and provided quick results. I have had various levels of success finding participants with the results, but you do get reports showing you complied with the DOL search rules for your files. I found APscreen a little more through in the reports they generated. There are quite a few others out there that all seem reasonably comparable on pricing. If you have a lot, you might look for a company that offers a bulk discount.

Thanks Artie. No, the situation has not come up in the past. The Plan Administrator agrees that whatever they do decide on in this particular case will be documented and used as a model should the situation arise in the future. FWIW the participant is not a highly compensated employee. For now, they are seeing if the vendor can handle this situation and will adjust its administrative policies accordingly to reflect the decision.

Thank you for all the comments. They are very helpful. I'm going to get some clarification but my understanding is the participant is on medical leave due to surgery and needs funds for medical expenses and is expected back in at work in 60 to 90 days. But it is a construction job and who knows if he will really be cleared by then or not. The plan does not allow hardships or that would be the likely route.

Yeah it's an unusual fact pattern for sure. My only question is does this meet the definition of eligible loan based o DOL rules at the time of issue knowing the payments will be suspended before they begin? My initial reaction is the same as yous Belgarath, that it is allowable but it is something I have never run across before.

Plan allows for loans. Loan program allows for payments to be suspended while on medical leave. Plan does not allow for hardship. Participant is not old enough for in-service. Participant goes out on approved medical leave. Participant now wants to take a loan to cover his medical bills, sponsor wants to allow. Participant and Sponsor then want to immediately suspend loan payments (that is no loan payments will be made initially) until participant returns from medial leave, not to exceed 1 year. Loan would accrue interest and be re-amortized so as not to exceed 5 year period when participant returns. Is this allowable from a code standpoint?

VAT would create a basis in the Plan. I'd ask for the 1099-R showing the non-taxable basis. I believe it would have been reported on Box 5. The distributions coming out are generally required to be pro-rated between basis and earnings.

If they benefit, you include.

Is there a separation of service? If they are on a leave of absence I would say no. if they are are on a lay off, I would probably say yes. Are they eligible for unemployment benefits while laid off? I don't know if that is definitive but I would lean toward that being a yes there is a separation and unless the plan has some other terms that would make the participant ineligible for distribution then they would be able to take a distribution. Have the Plan Sponsor make a determination whether the employee is terminated. If they treat as terminated and rehired, I wouldn't have a problem with the participant being eligible.