DOL Suggests Abandoned Plan Use by Bankruptcy Trustees
The proposal would allow such trustees to use EBSA’s existing Abandoned Plan Program to terminate, wind up and distribute benefits from such plans.
The existing Abandoned Plan Program provides streamlined termination and distribution procedures for abandoned individual account plans, including 401(k) plans, under which benefits may be distributed in a manner that can substantially reduce fees charged to participants’ accounts for things such as annual reporting, legal compliance and other administrative services, including termination costs. By making this streamlined process available to Chapter 7 bankruptcy trustees, the time and resources required to “wind up” a bankrupt company’s retirement plan can be reduced. As a result, plan participants likely will see fewer administrative and termination fees charged to their accounts and should have access to their money sooner.
“The rule we’re proposing today is designed to help workers and retirees of bankrupt companies gain access to their retirement money sooner,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. “Far too often, the retired workers of these companies are unable to obtain their hard-earned retirement savings in a timely way. The legal status of a former employer should not impede retirees’ access to their own funds, especially at the very time they need them most.”
Under amendments in 2005 to federal bankruptcy law, if a company in liquidation administered an individual account retirement plan, the company’s Chapter 7 bankruptcy trustee must perform those functions. The Abandoned Plan Program, established in 2006, provides specific guidance on when a plan may be considered abandoned, who may make that determination, and exactly how to terminate the affairs of the plan and make benefit distributions. The program also limits potential fiduciary liability of financial institutions that step in to terminate and wind up plans that have been abandoned by their sponsors.
Read the proposed rule at http://www.dol.gov/find/20121211.