Distributions from Orphan/Abandoned Plans

[Medusa]

We have a number of "orphan" plans, where the company has gone out of business and the principals have just walked away from the plan. Normally our distribution request form requires an employer signature. This can be tough or impossible to get in an orphan plan situation. We are considering the possibility of waiving the employer signature requirement in such cases.

Does anyone have any comments about the advisability of doing this, or the lack thereof?

[WDIK]

Have you looked into this?

[mbozek]

Two issues: one the IRS has taken a position in the past that a qualified plan must have an employer. If the employer has gone out of business, died or retired there is no longer an entity sponsoring the plan. Therefore the plan must be terminated and the assets distributed to the participants.

Second a qualified plan must be amended for changes in the tax law. If there is no employer how can amendments be adopted? If the plan does not have the most recent changes then the plan is not qualified. If there is no sponsor or principal, who is signing the 5500 forms or administering the plan?

I dont understand how any qualfied plan can be administered in accordance with ERISA and IRC if there is no employer representative to act on behalf of the sponsor or fiduciary.

[Medusa]

mbozek:

I completely agree with you. Unfortunately it is rather difficult to terminate a plan when the sponsor has gone AWOL. I wouldn't mind resigning either, if there were someone to resign to and somewhere to send the assets.

WDIK:

Thanks for the link. I know we can turn these plans over to the DOL but they are somewhat slow to react. I am trying to ascertain whether we can go ahead with the distribution on an orphan plan, or whether we need to just refer the participant to the DOL and wait until the DOL instructs us to do it. Although the plan has not been terminated, employment certainly has been.

[FundeK]

Not sure if this will help, but at my previous company, we would not distribute any funds until we had an authorized signer and all amendments had been completed. We had a couple of plans that were in the process of terminating for years, but did not have a plan sponsor. It was terrible because the participant's balances were getting eaten up by recordkeeping fees, and they weren't able to make any future contributions. It doesn't seem fair to the participants to hold the assets in the plan pending the DOL assigning a fiduciary. I guess the recordkeeper could waive all fees, but that isn't really fair either, but then again, when is life really fair!