Another Asset Sale Question

Client sponsors safe harbor 401K/profit sharing plan was going to be terminated as the employer would no longer be in business.All participants received the safe harbor non-elective.

The non-highly compensated employees were terminated as of 8/30/2019.

Plan is still active, employees have rolled over; owners are the only participants in the plan.

Accountant now tells us the sale was an asset sale, the company is not out of business; he wants to take a deduction for 2019 for only the 2 owners and their sons.

I don't see how he can.

12 hours ago, thepensionmaven said:

Client sponsors safe harbor 401K/profit sharing plan was going to be terminated as the employer would no longer be in business.All participants received the safe harbor non-elective.

The non-highly compensated employees were terminated as of 8/30/2019.

Plan is still active, employees have rolled over; owners are the only participants in the plan.

Accountant now tells us the sale was an asset sale, the company is not out of business; he wants to take a deduction for 2019 for only the 2 owners and their sons.

I don't see how he can.

Of course he can; we do it all the time. What do you think is the problem?

The plan is still active; there are still employees of the employer (the two owners and their sons).

However, your facts are confusing.  If they made the SH contribution for 2019 for the terminated NHCEs, you already have that part as the deduction so there won't be a deduction for "only the 2 owners and their sons".   If they contribute more, the deduction will still be appropriate (with all the normal conditions of meeting all the non-discrim rules).  If the HCEs have additional compensation, then they will have additional SH contribution as well.

This is a new comp prof sharing as well.  The question I was attempting to ask concerns the fact that I don't see how 401(a)(4) would be met unless the client made additional contributions for the terminated employees, who were all in a rush to get their money out of the plan.  I would hope the financial institution (Hancock in this case) leaves the accounts open.

Is this a 3% safe harbor plan?  I could see a scenario that would pass cross testing...even with all the terminated employees.

Edit:  Doh, I need glasses....

You say all participants received SH NE and plan is cross tested. Then to the extent that the already made SHNE support additional contributions that pass testing pass testing you are fine.

Just don't forget about gateway and other possible restrictions.