Terminated Plan did not fund safe harbor before distributing all plan assets

[Pammie57]

A restaurant client had a safe harbor 401k.  They terminated the plan in 2017.  However, they were supposed to fund the 2017 safe harbor contributions prior to distributing all of the plan assets.  They only funded about $5000 of the $15,000 that was due participants.  However, during 2018 they paid out all current account balances and the platform show zero for the plan balance.  What is the procedure for making the participants whole at this point.  They are anxious to file the final return, but there are still contributions due participants.   I don't think they have the funds to put into the plan.  

[401king]

Ignoring the fact that they may not have the cash to fund it (because that's a whole different can of worms), they can still fund the 2017 safe harbor with lost earnings and then re-distribute those funds to the employees. At this point, I would say the employer should eat the cost of those distributions since it is past the due date. 

[Luke Bailey]

Pammie57, I'll be happy to be corrected on this, but if they actually terminated the plan in 2017 (which is a mixed issue of law and fact, but let's assume they did it since you say so in your question), I don't think they can "fix" it in the sense of reporting the payments to the employees on a 1099-R rather than a W-2 unless they make a VCP submission. See Section 4.07 of Rev. Proc. 2019-19. It would be an easy peazy VCP, if that's the only problem and they have the cash for both the contributions and earnings.

[ESOP Guy]

17 hours ago, Luke Bailey said:

Pammie57, I'll be happy to be corrected on this, but if they actually terminated the plan in 2017 (which is a mixed issue of law and fact, but let's assume they did it since you say so in your question), I don't think they can "fix" it in the sense of reporting the payments to the employees on a 1099-R rather than a W-2 unless they make a VCP submission. See Section 4.07 of Rev. Proc. 2019-19. It would be an easy peazy VCP, if that's the only problem and they have the cash for both the contributions and earnings.

I am asking not debating when I ask this.  is this plan terminated?  There is a resolution to terminate but in order for a plan to be fully terminated you have to have a resolution and all the assets have to be gone. 

My first reaction is you can't file a final 5500 because this plan still has assets in the form of a contribution receivable.   You have to resolve this issue and then you can say the plan is terminated. 

Happy to be told otherwise but that is my first reaction.