Do I really have to formally terminate Solo-K?

We have a client that has a Solo-K  (Larry, don't yell at me, I'm using the term for clarity.)

No contributions since 2013, the last year an EZ was filed. (under 250k since then).

We find out today that he retired and took his money out in February.

Do I really need to terminate the plan?  What's the harm in leaving it "open"?  He will file a final EZ.

Don't think so. File final EZ and make sure that plan document is up to date for current law (not just latest cumulative list).

Well if you want to get technical, and if we aren't in a technical biz then I don't know; I mean, I've seen people fuss over things way less significant than this...the plan still exists until it is term'd; just taking money out doesn't terminate it.  So what are the consequences?  Well, the doc should be maintained and updated...if not, the plan is DQd, and the consequences would be...taxation of the $0 in the plan, so not exactly a nightmare scenario.  But I think there are potential issues with not terminating it and failing to update for SECURE and/or CARES.  As a side note, I try to avoid scenarios where "We find out today that he retired and took his money out in February."  

Anyway, I'd formally terminate it; don't see it being worth taking any chances...and could have prepared a termination resolution, maybe 3, in the time it took to ask and answer the question.

In addition, very doubtful, is there a spouse and also spousal consent requirement?

8 hours ago, Bird said:

Well if you want to get technical, and if we aren't in a technical biz then I don't know; I mean, I've seen people fuss over things way less significant than this...the plan still exists until it is term'd; just taking money out doesn't terminate it.  So what are the consequences?  Well, the doc should be maintained and updated...if not, the plan is DQd, and the consequences would be...taxation of the $0 in the plan, so not exactly a nightmare scenario.  But I think there are potential issues with not terminating it and failing to update for SECURE and/or CARES.  As a side note, I try to avoid scenarios where "We find out today that he retired and took his money out in February."  

Anyway, I'd formally terminate it; don't see it being worth taking any chances...and could have prepared a termination resolution, maybe 3, in the time it took to ask and answer the question.

Agreed; I would prefer to see an amendment/resolution that actually terminates the plan.  No big deal, so we do it. Is it absolutely required?  Maybe not. Maybe just paying out 100% of the assets (correctly) and filing a final 5500 is enough. My guess is the IRS would not quibble over this issue.  But do make sure the plan is up to date at the point of "termination".

I agree with Bird (and Larry which I caught after my initial response).  It may be overly conservative, but I have always went through formally terminating it even on solos as a belt and suspenders approach.  The signed Service Agreement with the client should speak to the plan termination services provided.  I think the minimal time spent is worth it in my opinion.  

On 7/29/2020 at 5:26 PM, Larry Starr said:

But do make sure the plan is up to date at the point of "termination".

Agreed, and this brings up a question I asked in another forum. If the formal termination date is after the date of the IRS letter for the pre-approved documents that most plans use these days, (generally 6/30/20) are you restating - in which case the time and expense is no longer minimal? 

And in case anyone cares, my stance is that if the formal termination date is prior to the 6/30/20 date, then just update with Interim Amendments. If on or after that date, restate. The line of doubters may now form on center stage!

In another life, I saw a DB plan that "matured", where all participants had a distributable event (retirement or other termination).  All died or were paid a LS under the terms of the plan.  No formal termination amendment.  The PBGC (i.e., the "guvment" powers that be) did not like this as an end to the plan and forced someone to execute a plan termination, including the Form 500 and 501.  Lesson: while it's possible for a plan to have satisfied all its obligations thru normal operation, the regulatory structure needs something more formal to end the plan; just having a proper paper trail might be a good reason also.  IMHO.

51 minutes ago, david rigby said:

In another life, I saw a DB plan that "matured", where all participants had a distributable event (retirement or other termination).  All died or were paid a LS under the terms of the plan.  No formal termination amendment.  The PBGC (i.e., the "guvment" powers that be) did not like this as an end to the plan and forced someone to execute a plan termination, including the Form 500 and 501.  Lesson: while it's possible for a plan to have satisfied all its obligations thru normal operation, the regulatory structure needs something more formal to end the plan; just having a proper paper trail might be a good reason also.  IMHO.

Yeah, but....

You are talking a DB plan where there is a third party (the PBGC) involved, so there are clearly different issues and a termination amendment in that case is absolutely justified and we would require same. A one man 401(k) is a very different animal.

4 hours ago, Belgarath said:

Agreed, and this brings up a question I asked in another forum. If the formal termination date is after the date of the IRS letter for the pre-approved documents that most plans use these days, (generally 6/30/20) are you restating - in which case the time and expense is no longer minimal? 

And in case anyone cares, my stance is that if the formal termination date is prior to the 6/30/20 date, then just update with Interim Amendments. If on or after that date, restate. The line of doubters may now form on center stage!

We are looking at the same issue at this moment, and your stance might be where we go also.  In our case, time is not minimal but expense is; all our clients pay fixed annual fees that include a document compliance fee (including complete restatements) that covers such activity.  The time factor is not that significant, but I would prefer to avoid the document restatement if I could.

There is one comment I saw from FIS (Corbel) that seemed to be recommending document restatement IF you go for 5310 filing; it appears to not be so committed to non approval seekers.  I need to look closer at that release again to make sure that is what they are really saying.

So what amendments need to be adopted if a plan is terminating these days (other than the plan term amendment, obviously)?

21 hours ago, BG5150 said:

So what amendments need to be adopted if a plan is terminating these days (other than the plan term amendment, obviously)?

FIS provides samples to their clients; who provides your documents?  Do they do likewise?

BG -just in general, I'd say Bipartisan Budget Act Amendment, SECURE Act Amendment, and possibly CARES Amendment.  You'd also maybe need the Disability Claims procedures Amendment. Maybe others, depending upon your plan...

This is what I was told by our doc provider:

1. The Sponsor Level SECURE Act and Expanded Hardship Amendment

2. Plan Level Hardship Amendment if any of the optional provisions regarding hardship amendments were selected.

3. A CARES Act amendment, if any of the CARES Act enhanced provisions were offered to participants.  We have  not created a CARES Act amendment but if any of your terminating plans did offer the participants any of these options, I suggest having your client sign the administrative checklist that can be found on our website and mention in the resolution that the checklist is a good faith amendment to the plan.

On ‎7‎/‎31‎/‎2020 at 9:32 AM, Belgarath said:

Agreed, and this brings up a question I asked in another forum. If the formal termination date is after the date of the IRS letter for the pre-approved documents that most plans use these days, (generally 6/30/20) are you restating - in which case the time and expense is no longer minimal? 

With prior cycle documents, we've given clients who terminated after the new documents were available, but before the restatement deadline, the option of either restating or terminating with an amendment (using the termination amendment from our document provider).  Most of them chose to avoid restating.

In the OP situation, I would have the client adopt a termination amendment.