The Department of Labor’s (DOL) guidance to permit bankruptcy trustees to use its Abandoned Plans Program has moved off of the OMB dashboard and is back with the department, signaling the review is complete on the long-awaited release.
A summary description of the proposal explains that the principal purpose is to permit bankruptcy trustees to use the Abandoned Plan Program to terminate and wind up the plans of sponsors in liquidation under Chapter 7 of the U.S. Bankruptcy Code.
The DOL’s Employee Benefits Security Administration (EBSA) has been trying to address this issue since early in the last decade.
The guidance dates back to December 12, 2012, when the DOL’s Employee Benefits Security Administration (EBSA) proposed amendments to three regulations previously published under the Employee Retirement Income Security Act of 1974 (ERISA) that facilitate the termination of, and distribution of benefits from, individual account pension plans that have been abandoned by their sponsoring employers.
That same day, EBSA published Notice of Proposed Amendment to PTE 2006-06. In September 2019, the DOL had withdrawn this entry from the semiannual regulatory agenda due to agency reprioritization, but following a review of agency priorities, the entry was returned to EBSA’s regulatory agenda in the fall of 2021.
“This agenda item had a false start and traveled back and forth between the OMB and Department and has been on and off the reg agenda for several years, touching three Administrations,” American Retirement Association Chief Legal Officer Allison Wielobob said. “Service providers are eager to know whether the department will expand the program to bankruptcy trustees.
She’s “optimistic” about its resolution because it’s a problem the department has wanted to solve.
“The program provides a standard for plan abandonment, simplifies winding up procedures, limits exposure of the termination administrator to fiduciary breach claims, and gives a simplified process for distributing plan assets,” Wielobob added. “For bankruptcy trustees, using the program should expedite a liquidation.”
The Abandoned Plan Program, established in 2006, provides streamlined termination and distribution procedures for abandoned individual account plans, including 401(k) plans. Under this program, 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.
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 program provides specific guidance on when a plan may be considered abandoned, who may make that determination, and exactly how to terminate the plan's affairs and make benefit distributions. It 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.
