Answer:
Answer by John Burnett: A profit-sharing plan with its own EIN is a separate legal entity. In fact, it's normally a trust created to protect the participants in the plan.
Although I don't pretend to know all of the details, I am aware that there can be significant tax penalties, and perhaps ERISA violations, for removing PS trust assets inappropriately. I believe those penalties would accrue to the business owner.
Answer:
Answer by Ken Golliher: If the profit-sharing plan is a qualified retirement plan, John's instincts are correct -- the effects of termination and withdrawal may be financially devastating to the business owner. However, it is the plan fiduciary, i.e., the custodian or trustee who is responsible, not a simple depositary institution. Encourage your customer to obtain advice from an attorney or CPA experienced in the subject matter before taking this step.
You can close the account by issuing a check the way you should whenever you close an account, by making the check payable exactly the way the account is titled. In this case, you make it payable to [the plan] by [the fiduciary] and then hand it to the business owner. The fiduciary will need to endorse it as well as any party to whom it is transferred. That would include the business owner if it is to be deposited to the business account. Alternatively, the fiduciary can write a check on the profit-sharing plan to any payee he wishes, including the business or the business owner.
First published on BankersOnline.com 11/3/03
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