Currently, a 401k plan allows for full participant self-direction of assets, but restricts it to one family of funds. One of the owners recently decided that he does not like this arrangement and wants to direct his money to another place. Allowing him to do so would require giving all others this option, which could get messy. While the owners sort that issue out, he inquired about another way to achieve this via taking in-service withdrawals periodically (eg, quarterly, semi-annually, or annually). The plan does not currently allow for in-service w/d's although it could be amended. Still, this seems to not be do-able, since the money would have to accumulate for 2 years before taking it out. Also, the participant is only 45 years of age.

I haven't come across a situation where a participant wanted to use an in-service withdrawal feature in such an ongoing manner and it sounds like it wouldn't work. Does anyone agree?

It does not work for elective deferrrals unless the participant has attained age 59 1/2.

The two-year service requirement should be seen as a "safe harbor", or just as something that the IRS has blessed (which is weaker than a safe harbor) for certain facts and circumstances.

I was in a plan once that in service distributions had no time limit on them (it was at one of the largest benefit consulting firms in the country). I removed mine (non salary deferrals) every year after receiving the match.

However, in your situation, given that it is the owner/HCE that would probably use this feature more than anyone else, you could be restricted (even to not being able to use it on a 2-year basis).

If the employer decides to go with offering another investment option/firm and assuming all other things are equal between this investment firm and the current one, and if the only one who takes advantage of the new investment firm is this 1 HCE (there are 3 hce's total), would that be considered discriminatory?

Also, if the owner thinks the investment vehicle isn't great, wouldn't it be a fiduciary breach not to offer everyone else an out?