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Guest CaptainMarvel

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Guest CaptainMarvel

Does anyone know if a services agreement with a service provider, which covers recordkeeping services provided to a 401(k) plan, and a group annuity contract issued to the plan as its investment option, would fall under the category of "executory contracts" as defined in the Bankruptcy Code? I suspect that they do because there are obligations which still have to be performed on an ongoing basis under both agreements. The issue has arisen because the plan sponsor is now filing for bankruptcy and if these two agreements are "executory contracts", the sponsor may exercise its right to "reject" or "assume" both agreements.

Thank you.

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I am not sure about the recordkeeping services agreement, but the group annuity contract issued to the plan would have nothing to do with the plan sponsors bankruptcy; as the plan is a separate legal entity from the sponsor. Anything owned by the plan is "NOT" owned by the plan sponsor. It would be, therefore, "EXCLUDED" from the bankruptcy estate assuming it is an ERISA plan.

I emphasize "excluded" as opposed to "exempt". Items such is IRAs, while not "excluded" from the bankruptcy estate, are "exempt" from the bankruptcy estate. Clearly "excluded" is blanket protection.

Good Luck


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Consider that whether a service agreement with a recordkeeper is an executory contract that a bankruptcy estate might assume or reject could turn on exactly which person is the recordkeeper's counterparty.

If the agreement is with the (nonbankrupt) plan and the agreement requires or permits payment of the fees from plan assets, bankruptcy law might not come into play. But the plan's administrator, trustee, or other named fiduciary holds whatever termination rights the plan provides.

If the agreement is with the bankrupt business organization, bankruptcy law might call for the assume-or-reject drill. (But remember that the debtor or its bankruptcy trustee has a statutory duty to continue administering the plan if the debtor was the plan's administrator before the bankruptcy.)

In either situation, it's not easy for a bankrupt plan fiduciary (or its bankruptcy trustee) to terminate or reject the recordkeeper's services for a practical reason. The way a recordkeeper ends its service is by delivering the records to the plan's administrator (or according to its instruction). It's not easy for a plan of a bankrupt employer to hire a new recordkeeper.

A recordkeeper should consult its expert bankruptcy lawyer to consider what claims to file, and what procedural steps to take, to protect the recordkeeper's fees.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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