Client is Sub-S Corp w/ 4 employees, 2 of which are husband & wife owning 94% of the business & one employee who owns the other 6%. They hate the paperwork, reporting & the expense of maintaining the plan, including the high fees of the MFs they must select from. They have contacted their 401k administrator to terminate the plan effective 12/15/17 so all liquidated funds for the 4 participants can be mailed to the institutional SEP custodian (likes of a Fidelity, Vanguard, or Folio) to arrive 1st few days of January 2018. That way, the Sub-S only has one QP in 2017 & in 2018.

However, the 401k administrator just made them aware, much to their surprise, that in order to terminate the plan effective 12/15/17, they must do a final Safe Harbor calculation & therefore will send them the plan termination/safe harbor cessation notice by Nov 1 so they you can provide that to the plan participants to sign & return immediately so the administrators can calculate the final safe harbor contribution.

Apparently, this is the 1st time the majority owners ever heard they had a safe harbor plan or that they would have to make a final safe harbor contribution prior to terminating the 401k. Is that really possible to only know of such a safe harbor contribution just prior to terminating a 401k plan? Or, would it have been possible to have a safe harbor plan but never a safe harbor contribution until termination?

Additionally, their past investment advisor told the majority owners if they terminate the 401k in favor of a SEP IRA that SEP IRAs will require distributions to match for all employees! For example, if the 2 majority owners contributed to the SEP IRA $1K per month, the same would need to happen for all vested employees. I have never heard of such a thing. What is that investment advisor inferring? What is behind that comment? Or, assuming you are also surprised by such a statement, tell me the question my client should ask that investment advisor to get to the bottom of this statement?