Owner wants to terminate employment to get plan assets

One of the owners in a business (not yet 59 1/2) has already gotten all the plan assets he can via hardship distributions.  Now he wants access to more, but was told that he can't due to the terms of the plan.  So, now he's decided to "terminate employment."  The plan is that he will eventually be rehired.  Of course, there's no way we can sanction this attempt to circumvent the plan provisions.  Where do I look for guidance on this?

The topic you need to research is "bona fide termination".  This doesn't sound like it is an actual termination.

The only ruling I know if are things like this PLR

http://static1.1.sqspcdn.com/static/f/665111/25950562/1423767694040/IRS+PLR+201147038.pdf?token=Tq9po4%2BbfuTlNL%2B5UBcPXqnyVb8%3D

I think it would be hard to prove an owner actually terminated with no expectation of returning if he does return or the business keeps operating. 

This person is looking at plan disqualification if they try this in my mind. 

he can terminate the plan.

There was a good article also mentioning the same PLR.

http://www.employeebenefitsupdate.com/benefits-law-update/2015/2/12/when-a-termination-is-not-a-termination.html

This letter from the IRS Office of Chief Counsel explains the issue very clearly especially in a 401(k) plan and reflects the IRS' serious view of the matter.

Quote

Failing to enforce the separation from service requirement if a participant takes a plan distribution could be very serious. If a 401(k) plan makes a distribution to a participant due to a separation from service and it is determined that a separation from service did not actually occur, the 401(k) plan may be disqualified under 401(a) and 401(k). Plan disqualification results in adverse tax consequences to the employees participating in the plan and to their employer.

https://www.irs.gov/pub/irs-wd/00-0245.pdf

The information you've provided is exactly what I was looking for.  Thank you all for your help.

Making decisions other than ministerial decisions will make someone a fiduciary.  Is that your job?  A ministerial act is to follow plan terms about what happens when an employee terminates when the appropriate authority certifies that an employee has terminated.  If the service provider suspects that all is not what it seems on its face, then a fiduciary should be consulted for guidance.

Get a QDRO.  Distribute all the assets to the alternate payee.

Why not amend the plan to allow for in service distributions, if there is profit sharing source. ?

if the inaccessible funds are salary deferral and safe harbor money, then that does create a snag. I am not  comfortable with what amounts to be a "fake" termination of service. With that person being the owner, it is very fishy.

How can an owner terminate from employment?