Bankruptcy

[Felicia]

If an Employer files under Chapter 11, how does this affect the 401(k) plan? Are there any circumstances when a participant's account can be used to pay legal fees? If so, is there a cap on how much can be deducted from a participant's account? If fees can be deducted from a participant's account, can the account be held hostage until all bankruptcy work had been completed and all fees are paid? If there a governmental agency that can give some guidance on this please advise which agency.

Thanks.

[mbozek]

?- Under ERISA the assets of the plan are not subject to the claims of the employer's creditors. The Bankruptcy trustee usually appoints an administrator for the plan who will usually terminate the plan and pay off the participants. There is no govt agency that administers DC plans of bankrupt employers since the plan is subject to the jurisdiction of the bankruptcy ct which has discretion over how the expenses for winding up the plan will be paid.

[david rigby]

Plan provisions might state that the plan will automatically be terminated in case of a bankruptcy filing, although there could also be some additional conditions attached.