The U.S Department of Labor's Employee Benefits Security Administration announced Dec. 11 a proposed rule and related class exemption that will make it easier for Chapter 7 bankruptcy trustees to distribute assets from bankrupt companies' retirement plans. The proposal would allow Chapter 7 bankruptcy trustees to use EBSA's existing Abandoned Plan Program to terminate, wind up and distribute benefits from such plans.
The 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, among other things, annual reporting, legal compliance and other administrative services, including termination costs. EBSA’s intent in making this streamlined process available to Chapter 7 bankruptcy trustees is to reduce the time and resources required to wind up a bankrupt company's retirement plan.
Under amendments in 2005 to federal bankruptcy law, if a company in liquidation had 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 the potential fiduciary liability of financial institutions that step in to terminate and wind up plans that have been abandoned by their sponsors.
