Bankruptcy and timing of amendment to pay plan expenses from the plan ...

[Spencer]

I have a client who is about $5000 and several months in arrears regarding our invoices for TPA services. We have a signed contract with them that states we will cease services if any invoice goes unpaid for 60 days. When we notified them that we would be ceasing services until we received pmt., they informed us there were on the verge of filing bankruptcy. Also, they had not remitted several months worth of deferrals.

Now, without our prior knowledge, the broker has requested a check from the plan to pay our past due fees. I explained to broker that 1) the plan had to be amended to do this and 2) the amendment could be not retroactive and past due fees could not be paid from the plan. Do you all agree that the past due fees cannot be paid from the plan?

Broker has accused us of holding the plan and participants "hostage." My understanding is that upon filing bankruptcy, bankruptcy trustee will appoint a TPA to terminate the plan and payout participants.

Regarding our past due fees, I realize that we are just in line with the other creditors. But I want to warn the broker and the trustee that in trying to remedy the problem, they are creating others. Agreed?

[Kirk Maldonado]

I'm not a bankruptcy attorney, and you need the advice of one.

But my understanding is that the payment to you shortly before they file bankruptcy would be a preference that you would have to pay back, with the result that you stand in line with the other unsecrured creditors.

[Spencer]

Okay, that makes sense.

But my real concern is that the broker has advised the client to pay plan expenses prior to executing an amendment and the fees are for the 2004 plan year end. Is it okay to amend the plan on April 13, 2005 to pay plan expenses and then pay expenses that are nine months old?

Thanks.

[austin3515]

two words (or one?): anti-cutback.

No dice...

The question really is it your problem? I suppose BEFORE receiving payment you could resign as TPA (via a letter sent with certified mail). Then I can't see how it's your problem, but like Kirk I'm not an ERISA attorney...