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Plan termination when plan sponsor in bankruptcy


Belgarath

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Just looking for some general advice on this. Plan sponsor of a profit sharing and a 401(k) is in bankruptcy, and wants to terminate plans. Usually we're not involved at this point, because they haven't paid their fees and we've terminated the service contract.

Plan Trustee still around and available, and willing to "do their duty." So we don't have to deal with some of the typical problems.

However, are you aware of any particular things we need to watch out for in this situation? Also, we want to make sure we get paid! Do you think the client would be safe if they rely on DOL Opinion Letter 97-03A to allow payment of our fees from plan assets? We just don't want to get dragged into something that isn't clean, and the whole settlor function fee issue has been thorny for a long time.

Appreciate the benefit of anybody's experience or knowledge. Thanks.

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Just my opinion, but if a formal bankruptcy has been filed (beware, there might be other terminology in some states that is similar), then reliance on a DOL Opinion letter likely will not guarantee payment of your fees. Seems unlikely that a bankruptcy judge is going to be limited by DOL opinion.

Getting advice from legal counsel seems appropriate.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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The administrator would normally be paid either by the Plan sponsor from corporate assets or by the Trustees from plan assets.

With the Plan Sponsor declaring bankruptcy, I would not count on getting any payment from that source. But perhaps the plan documents allow for the payment of expenses from the trust(s)--either from the participant accounts or any accumulated forfeitures. That would be worth checking out.

RCK

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Guest merlin

Your client has probably reserved $x000 for payment of fees for professional services connected to the bankruptcy-legal, accounting,etc.You can be certified by the court as a service provider to see the termination through to its conclusion. This gets done through the bankruptcy trustee.But the downside is that you'll have to waive any claims to fees for services provided pre-petition.At least that's the way it works in New Jersey.We recently had to write off about $10000 of pre-petition fees in order to be certified for a termination fee of approximately $75000.But we had a hammer: the client had 3 db plans, all covered by PBGC,two of which were insufficient. The bkptcy ttee was smart enough to understand that the PBGC filings were mandatory and problematic- hence the high fee- so he got us certified. We're almost at the end of the road,and the economics have worked out very favorably for us. Your situation may be different.Good luck.

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