Can a terminated employee be a trustee?

[Vlad401k]

We have one client who is an owner of a small company. He wants to take all of his money out. He cannot take his money out as an in-service (he's under 59 1/2 and his account consists mostly of Deferrals and Safe Match contributions). What he wants to do is "terminate" himself for one day, take a distribution out for all his funds (approve the distribution as the trustee), and then become "re-hired" the next day. This seems pretty sketchy to me personally. Is this allowed?

[My 2 cents]

Speaking as someone who does not work on 401(k) plans:

If the termination is not bona fide, then the regulators might consider it a sham transaction and thus a violation of the rules against in-service distributions.

The fact that he (as participant) would be conniving with himself (as trustee) is unlikely to make it look any better to the regulators.

Is he the sole trustee? In general, not a good idea to be approving his own distributions.

Terminating the entire plan would probably be likely to better withstand regulatory scrutiny.

[QDROphile]

The termination will not be respected as a termination for puposes of distribution. That makes your other questions moot.

[shERPA]

Agreed, not a legitimate termination of employment. Never any intent of the parties involved to terminate the employment relationship.