Safe harbor contribution can't be made

[Bill Presson]

We were just informed by a client that they have terminated everyone's employment and will be shutting their doors next week. The 401(k) is a safe harbor non-elective plan. We were told they wouldn't be able to make the 2014 safe harbor contribution.

Try as I might, I cannot find anything addressing what is supposed to happen. The final regs issued last year anticipate the employer would be smart enough to know a bit in advance and make some changes to reduce the contribution to an amount they can still make.

We obviously have other issues (like how are we going to get paid for termination services), but what do we do? Currently, the problem belongs to the client and I want it to remain their problem.

Is there a possibility the IRS/DOL would come after the owners due to compensation they took out before the company shut down?

Thanks.

[Flyboyjohn]

The plan is a general creditor of the company, do you know if they intend to file for bankruptcy and stiff other creditors?

Plan Trustee has an affirmative fiduciary/legal duty to pursue collection from the company, are the owners also the Trustees?

Don't know about "piecing the corporate veil" but think the easiest way to force them to pay personally is to go after them as plan fiduciaries.

[Lou S.]

Might be dischrageble in bankruptcy but I think that would still likely disqualify the plan.

If the if HCEs are planning on rolling any kind of substantial balance to an IRA, maybe try and use that as leverage? Though if there is no money, there's not much that can be done.

[My 2 cents]

Under what circumstances would "compensation they took out before the company shut down" be considered as defrauding the company's creditors (including the 401(k) plan to the extent that promised contributions are not paid)?

[Bill Presson]

Thanks everyone. And thanks to Peter Gulia for the call.

[mbozek]

taking out funds to pay the owner's comp within 90 days before the employer declares bankruptcy is a voidable preference.