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Actuarial vendor performs the annual actuarial valuation for a DB plan, and delivers the report to the sponsoring employer (i.e., the PA).  Actuarial vendor then sends its invoice for services rendered. 

 

The plan provisions have always permitted the plan to pay reasonable expenses if not paid by the sponsor.  "The trust fund shall be used for the exclusive benefit of the participants and their beneficiaries and to pay administrative expenses of the plan and trust to the extent not paid by the Hospital."

 

In prior years, the sponsor has elected to have the plan pay some expenses, including fees from the actuary, but not necessarily the same each year.  In some years the plan has paid expense X, Y, and Z, while in other years the plan has paid expense X and Y.

 

For the current invoice, the sponsor does not pay promptly, nor is the invoice paid by the plan.  A few months later, the sponsor declares chapter 11 bankruptcy.  The sponsor also files for a PBGC distress termination (without involvement of this actuary).  Sponsor refuses to pay the actuary's invoice, and refuses to send the invoice to the plan trustee for payment.  Bankruptcy attorney says, “get in line, like everyone else”.

 

Research includes ERISA sections 403 and 404, and DOL Advisory Opinion 2001-01A, Distress Termination instructions.  Nothing appears to restrict the payment of reasonable administrative expenses in the event of bankruptcy.  My view is that plan provisions require the sponsor to direct payment from the trust since the sponsor has not made the payment, but I’m willing to consider other viewpoints.  Any comments or experience that you are willing to share?

 

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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I don't know how much you're talking about but if it's enough I would hire a lawyer just for the purpose of contacting the bankruptcy trustee (not the Plan trustee) to explain your position.  The lawyer should say that you don't want to have to sue the plan but you will and you will probably succeed if you do so the bankruptcy trustee should arrange to have the plan pay it.

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A few thoughts and questions for the actuary to consider and get his or her lawyers’ advice on:

 

Employer

 

If the bankruptcy proceeding is under chapter 11, there might not be a bankruptcy trustee serving.

 

If the hospital is a charity, consider whether bankruptcy law and trust law regarding charitable gifts might further limit the pools of assets available to respond to claims against the hospital.

 

Consider whether payment from the business or charitable organization’s bankruptcy reorganization might be unlikely because courts might find that the debtor should not bear the pension plan’s plan-administration expense.

 

Does the debtor (or its attorney) understand that the plan is a person separate from the debtor?

 

Plan

 

Even if the employer is insolvent, this does not necessarily mean that its pension plan is insolvent.

 

Does the pension plan’s administrator need or want the actuary’s cooperation to help accomplish the employer’s reorganization?

 

If the pension plan refuses to pay after the actuary’s reasonable demand, would a court award the unpaid actuary’s attorneys’ fees made necessary by the plan’s unreasonable refusal to pay an owed fee?

 

Risk management

 

Might a lawsuit or other claim attract counterclaims or crossclaims about the actuary’s performance?

 

Professional

 

Does Federal law, including 20 C.F.R. § 901.20(j), allow the actuary to withdraw or disaffirm his or her report?

 

https://www.ecfr.gov/cgi-bin/text-idx?SID=c200ef7b93d787b376d2120dd9a1a124&mc=true&node=se20.4.901_120&rgn=div8

 

Would withdrawing or disaffirming the unpaid-for report breach any professional-conduct rule of the actuary?

 

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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1.  If the plan says that the plan can pay expenses to the extent not paid by the employer, it would seem that the obligation to pay the actuary belongs to the plan and not the bankrupt employer (who is clearly not going to pay the fees).

2.  As there has been a filing for a distress termination, it is probably to the PBGC that the actuary will have to turn seeking approval of payment of their fees from the plan assets.

3.  I would find it difficult to reconcile withdrawing an already issued actuarial certification with the requirements of the standards of practice, especially due solely to unpaid fees.  It looks more spiteful than anything else.

Always check with your actuary first!

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My limited experience with bankrupt clients is "get in line" and expect to receive a few cents on the dollar in about 5 years.  

Work done after the bankruptcy can be cleared with the court and paid in full, but the outstanding invoices at the time of bankruptcy, may be a lost cause.  Then again, our situations were small clients and it wasn't worth hiring our own lawyer to fight about it.

You can always refuse to sign the SB until you are paid.  Eventually the IRS MAY come asking and the court might approve your fees to prepare the required filings.  Also, the PBGC will eventually ask you for information and you can pre-bill any expected time for compliance.  Since they are going distress, ultimately the PBGC is responsible for your fees because the plan assets are not sufficient.

Also, keep in mind the PBGC has their own actuaries, so you may never here from this client again. 

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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The employer's reorganization does not by itself impair the pension plan's ability to pay.

Even without any action at law, might it be worth asking the plan's current administrator to pay the outstanding invoice (from the plan's assets)?

 

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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I agree with the last comment. Since the plan can pay, I think the bankruptcy trustee could get the court to approve payment. I have been involved in several DC cases where the costs of administering the plan of the bankrupt employer have been paid by the trust, with Bankruptcy Court approval. If the trustee is unwilling to request permission from the Bankruptcy judge, perhaps you can make a motion in the bankruptcy court. I would ask an experienced bankruptcy lawyer in your area about this.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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I agree, but if that's the case it seems to make it discretionary with the trustee, who has already said he doesn't want to pay. I am not a bankruptcy lawyer but think it may be within the bankruptcy judge's authority (which I am given to understand is pretty broad) to help the aggrieved actuary here.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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The originating post refers to a bankruptcy attorney (and doesn't say which person that attorney represents or advises), and doesn't mention any bankruptcy trustee.  Also, the originating post says it's a chapter 11 reorganization, so there might have been no appointment of a bankruptcy trustee.  (A debtor-in-possession reorganization might be accomplished with no use of a bankruptcy trustee.)

Further, it's possible the employer no longer serves as the plan's administrator, and that the current plan administrator or other fiduciary that has power to decide to pay an expense from plan assets is a person that needs no mother-may-I to make a payment from a pension trust not under the bankruptcy court's supervision.

The pension plan's current fiduciary might have power to make or instruct a payment, and might be willing to do so.

While only the creditor knows the circumstances, there might be little harm that would come from asking for the plan's payment.

 

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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According to the original post, this is a chapter 11 filing and there has been an application to the PBGC for a distress termination.  Perhaps the PBGC should be contacted concerning the outstanding service fees.  Especially if the plan is trusteed by the PBGC (which seems to be more likely retroactive to the bankruptcy filing than as of any other later date), it would be the PBGC who would have to authorize paying expenses from plan assets.  May as well make sure that the PBGC is aware of that aspect.  As I mentioned above, it does not sound as though expenses must be paid by the sponsor.

Always check with your actuary first!

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