SH Plan - Employer Closing Doors

[austin3515]

Company A has one purpose: To provide servies to Big Customer. Company A makes a LOT of money servicing Big Customer, but Big Customer has told Company A that the contract will not be renewed effective 4/1/2012. At this point, Company A will be closing its doors.

1) May Company A continue to rely on its safe harbor status through the date on which they close their doors? There will probably be wrap up stuff going on through June 30, 2012, but then nothing. It's hard to argue there is a financial hardship as large bonuses are being taklen. (1.401(k)(e)(4)(ii)). I don't the like "(g)" exception provided because I need to run the ADP test.

2) Even if everyone is terminated in June 2012, what's to stop me from terminating effecetive 12/31/2012? Everyone will be eligible for a distribution under the Plan due to employment status, so I can pay everyone out. I would just need to get resolutions signed terminating the plan effective 12/31/2012, which would allow me to file a final 5500 (only a few people have account balances). Is it that easy to get around this? What's more, couldn't they sign that resolution in June or July 2012 and be done with the Plan at that time (assuming everyone is paid out by then)??

[ETA Consulting LLC]

2) Even if everyone is terminated in June 2012, what's to stop me from terminating effecetive 12/31/2012? Everyone will be eligible for a distribution under the Plan due to employment status, so I can pay everyone out. I would just need to get resolutions signed terminating the plan effective 12/31/2012, which would allow me to file a final 5500 (only a few people have account balances). Is it that easy to get around this? What's more, couldn't they sign that resolution in June or July 2012 and be done with the Plan at that time (assuming everyone is paid out by then)??

I think the plan would 'effectively' terminate due to no active participants after June 2012. The IRS could 'deem' a plan to have terminated at a date that is different from the date on the termination amendment. This would be based on relevant facts and circumstances that suggest the plan actually terminated June 2012, irrespective of the amendment stating a later date. Just think, supposed this happened and there were non-vested profit sharing balances. You see how this argument could be made.

Good Luck!

[austin3515]

Just think, supposed this happened and there were non-vested profit sharing balances. You see how this argument could be made.

Partial term rules would cover that.