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Is going out of business a "substantial business hardship"

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The plan sponsor of a plan with a safe harbor match has gone out of business suddenly, and only after the fact called to tell me that he needs to terminate his plan. He understands that he has to fund the safe harbor match through the final payroll, but will fail ADP if he has to test.

"Going out of business" isn't technically one of the reasons to have a short plan year for a safe harbor match so far as I can see... but it has to sort of fall under there, doesn't it?

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I think it would depend on why he went out of business. If it was due to financial problems with the business, it could be a substantial business hardship. If he shut it down because he decided to retire, it wouldn't be.

Any chance he sold the assets of the company when he shut it down? If so, it could be in connection with a 410(b)(6)© transaction.

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The criteria for determining “substantial business hardship” includes (but is not limited to):

• whether or not the employer is operating at an economic loss; and

• there is substantial unemployment or underemployment in the trade or business and industry concerned; and

• the sales and profits of the industry concerned are depressed or declining.

I know of no other guidance on this and because it is a facts and circumstances determination, in my opinion the Employer must make the final determination as to whether or not this definition is met.

Does anyone know of any cases where the IRS has taken this issue to court?

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