Bankruptcy Plan Termination

[Guest dyoder]

Does anyone have any experience with the following scenario:

Company files for bankruptcy March 2002 but has not contributed 401(k) deferrals and matching contributions for November December 2001 as well as January 2002. This situation only comes to light May 2003.

[BFree]

Yes, irrespective of your relationship to the plan, it stinks. Long and drawn-out. Enraged participants. DOL onsite, agrees to attach owners' accounts. Fees eating up plan assets. Closure 2.5 - 3 years later.

[mbozek]

Yes there are a lot of unhappy campers. The Dol will contact all the fiduciaries to make them pay for the missing contributions and earnings but I dont know how many cases they pursue in court since the DOl has limited resources. Many fids resist paying for missing funds because they were not involved in the removal of the funds or had no oversight over remittances. In some cases will be referred to the Justice Dept for criminal prosecution.

[GBurns]

What type of bankruptcy? What has been done so far? Why did it take so long to be discovered? What

If the company is still in business it should not be too difficult to get the money since it would not have been discharged by the BC.

If still under BC, the trustee most likely will help collect rather than have a filing that could set aside any reorganization or disposition plans already in place.

[BFree]

In one of my cases, the company was no longer in business. Even if it were in business, I would hesitate to attach the phrase "not too difficult" to the situation as a whole. I suggest that the questions "Who pays?" and "How much" and "When" are determined as soon as possible.

[GBurns]

You might want to check and see what Bankruptcy Courts usually do when a case is submitted without full disclosure of debts especially large ones and ones that have connotations or indicia of fraud, misappropriation etc. They have been known to dismiss cases and reopen cases even after discharge.

The threat of a reversal of discharge and criminal referral by a BC is the starting point re "not too difficult" since the missing money most likely is not the major debt.

The IRS monitors BCs and would be very happy to get the lead from the BC for criminal action.

The above also applies partially to those that have gone out of business. Somebody sold the assets, somebody took a tax deduction, somebody filed a final return. That somebody would need to be ready to mount a defense against the IRS and the BC. Going out of business does not mean you just walk away.

[mbozek]

Before running off to research bankruptcy law the plan reprentatives should get a copy of the bankruptcy filing to see if the plan is listed as general creditor of the employer for for the amount of the outstanding contributions. If the outsanding contributions were listed on the schedule then it is the responsibility of the plan representative to file a claim with the bkcy ct.

[GBurns]

mbozek,

Re "Before running off to research bankruptcy law ". I know that I am asking much, by saying that IF YOU do read the thread, you will see that my post was a response to BFree.

As for the rest of your post, that is why you check with the Bankruptcy Trustee because "If still under BC, the trustee most likely will help collect ".

[mbozek]

GB: The bankruptcy trustee is not a party to recovery because only a fiduciary can bring an action on behalf of the plan for the salary reduction contributions which are deemed to be plan assets. The trustee represents the estate of the employer who is the debtor who owes the funds to the plan. This is why the DOL attempts recovery for salary reduction from the named fids under ERISA. The matching contributions are only claims of an unsecured creditor.