When has an owner terminated employment for purposes of being entitled

[John A]

For qualified plan purposes, when has an owner officially terminated employment? An owner would like to take a distribution from the plan, but would like to be sure they can be considered terminated. In-service withdrawals are possible, but not for the full amount of the account. The owner has not taken any compensation for more than a year, but the owner does still share in the profits.

1) Can an owner retain ownership but terminate employment?

2) Can an owner still be considered an active employee even though no compensation is taken?

3) Can an owner be considered terminated even though the owner shares in the profits?

4) What date would an owner be considered terminated?

Thanks for any thoughts on the issues.

[KIP KRAUS]

John:

I would start by looking to the Plan Document for definitions of an eligible employee, and Plan Participant. If the owner doesn't fit the definition of an eligible employee/participant, and doesn't work for the company any more, you may have a good case for treating him as terminated.

However, someone else out there in Benefits Land may know of a ruling regarding Company owners and their status as terminated employees.

[Guest LDH1]

I can't seem to find the cases, but I know that in at least 2 cases a court determined that there had been a separation from service when the only remaining employee following a sale was the owner. The court found that his job had so substantially changed following the sale that there had been a separation from service. One of the cases I am thinking of involved film processing. Hope that helps.

[david rigby]

Another point would be how the plan defines normal retirement age. A plan can permit in-service distributions to an active employee who has attained NRA.