Asset sale & Plan Termination--paying out "terminated employees"

[Minnesota planner]

Asset sale occurred 11/2, plan termination effective date is 11/3, seller (sponsor of plan being terminated) says employees were terminated on 11/1. This is a tested plan but only owners are HCE's. There are no Employer contributions.

Can non-owner employees be paid out on 11/30 before any year-end work is done technically on the basis of being terminated employees vs. for the reason of the plan termination?

[Larry Starr]

Suggest that you explain what the issues are with the question you are asking. That is, what is the difference between whether they are treated as being terminated employees or whether they are being treated as in a terminated plan.  You obviously see some difference; what is it?  Also, we probably need to know what the plan says about paying out terminated employees in the regular course of business (non plan termination situation).

[Minnesota planner]

The issue I see is that actually one of the HCEs is not an owner and plan is subject to ADP testing. Last year refunds were required. Also part of plan year end process is reconciling deposits made into the record keeping vendor to verify 401k deposits match payroll reports /W2 and then assist with adjustments. We do know in this case it is not top heavy so poyrmyially having to make those contributions is not an issue. The recordkeeper platform requires fees be paid and potentially fixed account adjustments when a plan terminates and participants get paid out. For those types of reasons our firm has required plan year end (incl short plan year end) work to be completed before participant payouts occur. We have been are strong pushback in this case so wanted to see if there was a rule to fall back on supporting what we do. On pooled plans in past always had to do final allocation of gain loss as in plan year end work as well to determine ending balances. So that model has prevailed although now for different reasons.

[Minnesota planner]

*sorry for the typos which are as follows:

”poyrmyially” (??!) Meant to be “this time”

“We have been are” ...sb “we are getting strong pushback on this for this planas well as the last one we had so wanted...”

Thanks for you thoughts

[Larry Starr]

On 12/28/2018 at 2:35 PM, Minnesota planner said:

Asset sale occurred 11/2, plan termination effective date is 11/3, seller (sponsor of plan being terminated) says employees were terminated on 11/1. This is a tested plan but only owners are HCE's. There are no Employer contributions.

Can non-owner employees be paid out on 11/30 before any year-end work is done technically on the basis of being terminated employees vs. for the reason of the plan termination?

OK, now I understand your issues.  The plan administrator is free to decide to defer making the payouts until the year end work is done and in this case I think that makes excellent sense, especially given the risk of an ADP failure.  Also, since the plan is terminated, I would think it makes sense to hold of on the NHCE payouts as well until the full reconciliation is done for the year.  But it is the PA's choice.  Just tell them what happens if there is a screw up in the accounts and you don't have a chance to reconcile before they distribute; they may have to make up any errors out of their own pockets!  That might deter them from making the distribution now.  Hope that helps.