Anybody see a problem with an employer paying out a terminated participant with a company check and counting that distribution as a contribution?

The concern is that the money is not being run through the trust.

Yes, well stated that the funds were never company assets. Aguably could be considered a PT as a loan or extension of credit by a party in interest to the plan.

Bad practice, why not contribute to plan and have plan issue check?

Brett

It's not a PT. See PTE 80-26. But I agree with your concern about the money not passing through the trust,and with b2kates's recommendation. Have your client get some kind of checkwriting capability for the plan.

The previous responses are right on - the plan should have a checking account! But, if the Trustee refuses, for some obtuse reason, to set up a checking account, then the employer could just write the check to the Trustee. This would qualify as a contribution, and the Trustee can then simply endorse the check over to the participant. Note, however, that this brings up additional potential problems if it is over $200.00, because you then have mandatory withholding. So unless it is a direct rollover where the Trustee can endorse directly to the new custodian, this approach won't work.