Company out of business, cannot pay 2019 SH

Company went out of business, terminated its plan and all assets are liquidated.

Problem is, the 2019 3% SH was never deposited.

What do they do if the owner cannot afford the $32,000 3% Safe Harbor?

Can they past testing if they were not a safe harbor plan?

Did the company declare bankruptcy?

Was the Plan top-heavy for 2019 without SH exemption?

Would the plan pass ADP if not SH?

Is the owner unable to make the contribution or just doesn't want to make the contribution?

How much of the $32,000 is owed to the owner and or their spouse? How much to rank and file?

They should probably consult an ERISA attorney on their exposure. Worst case you could be looking at plan disqualification which would taint any rollovers to IRAs and disallow deductions on open years and you could be looking at DOL trying to recover contributions on behalf of the participants.

32 minutes ago, Lou S. said:

Did the company declare bankruptcy?

Was the Plan top-heavy for 2019 without SH exemption?

Would the plan pass ADP if not SH?

Is the owner unable to make the contribution or just doesn't want to make the contribution?

How much of the $32,000 is owed to the owner and or their spouse? How much to rank and file?

They should probably consult an ERISA attorney on their exposure. Worst case you could be looking at plan disqualification which would taint any rollovers to IRAs and disallow deductions on open years and you could be looking at DOL trying to recover contributions on behalf of the participants.

Most important first question: are they a corporation or a non-corporate entity?  And the other questions are also needed, but the second one is did they declare bankruptcy?

1 minute ago, Larry Starr said:

Most important first question: are they a corporation or a non-corporate entity?

excellent point

Turns out, company is not out of business.  They just terminated the plan.

But they lack the funds to pay the SH.

I don't think there is any mechanism to relieve them of the contribution.  If I'm the TPA, that's what I tell them, and say they can consult an ERISA attorney but I don't think they are getting a different answer.  I'd keep the plan "open" with the receivable and refuse to prepare a final return until the receivable is satisfied.  

The plan is a creditor of the business.   Tell them to get on a payment plan...  Even if it takes years to repay it, you need to do something.  Especially if someone is the Trustee or a fiduciary as they need to try and collect what is due to the plan.

Does the owner have $64K in their account?  Take a loan for $32K and avoid this horrible headache.

How much of the $32K is going to non-owners?

Why does it matter of how much goes to the owners unless the SH have the clause of excluding the owners (presumably HCE's). Is there a waiver that I am not aware of?

I am just curious about how they can get out of this obligation especially if the company is still in biz.

Thank you

9 minutes ago, Jakyasar said:

Why does it matter of how much goes to the owners unless the SH have the clause of excluding the owners (presumably HCE's). Is there a waiver that I am not aware of?

I am just curious about how they can get out of this obligation especially if the company is still in biz.

Thank you

It isn't necessarily a matter of getting out of the obligation, but the details are going to be important.   I had a similar discussion with a client not too long ago.  "I cant afford the SH contribution" rarely means that they truly cannot get the money to make the contribution.  If there is no income, no assets to liquidate, and no line of credit that can be used or established to fulfill the obligation, then it is a different conversation, but most of the time it is more of a cash flow issue.

When I had this same conversation with my client, we got to a point where they could at least find the assets to fund the non-owner portion of the contribution.  Why?  Because the IRS and DOL will ultimately look at the best interest of the participants.  If you truly cannot get the cash to fund the contribution, you will be in a much better negotiating position if you can show that you at least found a way to make the non-owners whole.  In my case, after the non-owners were funded, the remaining obligation wasn't as impossible to fund when considering that all of the remainder would go to the owners.