How much authority does a bankruptcy trustee have?

[Kimberly S]

Plan sponsor is in bankruptcy. Under the terms of the document, the sponsor is the plan administrator. Two individuals are the plan trustees. The attorney who is the bankruptcy trustee wants to terminate the plan. As recordkeeper, it is our usual procedure to require that this instruction come from the plan trustees. The bankruptcy trustee is refusing to allow the plan trustee to sign the resolution to terminate the plan and the distribution paperwork. He says that we must accept his signature because being bankruptcy trustee makes him automatically the plan trustee. (The trustees have completed distribution paperwork to receive their own balances, so we know they are around and could sign.)

I'm confident that being appointed bankruptcy trustee for the company does not make someone automatically a plan trustee. However, as bankruptcy trustee for the plan sponsor/administrator, I'm wondering if we should accept that signature on the termination resolution. I'm unsure about the distribution paperwork.

What do others do in this situation?

[QDROphile]

Termination of a plan is a sponsor function, not a fiduciary function. Unless the sponsor has a contractual obligation to reckon with the trustee in connection with a termination, the trustee has no say about termination. All this stuff about who is the plan trustee is misguided. However, things that happen after the plan termination (le.g. liquidation and distribution) can be the responsibility of the trustee and would be governed by the trust agreement. Also, the plan sponsor usually has authority to remove the trustee and appoint a replacement, so the bankruptcy trustee, who ususally stands in the shoes of the sponsor, is in control. It appears that the control could be exercised, or at least explained, with more appropriate formality.

[Kimberly S]

So in this case, you would accept the direction of the bankruptcy trustee to terminate the plan, but require the direction of the plan trustee to make the distributions?

[QDROphile]

Assuming that the applicable documents give authority for distributions to the trustee. The plan administrator might have that authority and you stated that the sponsor is also the administrator.

I don't know how the bankruptcy trustee actually acts; court or other approval may be needed. I doubt it is your job to worry about that.

[david rigby]

The original questioner probably should be concerned, at least a little, to make sure that whoever gives instruction is authorized to do so (which is what the recordkeeper should do for every client/plan).

[Peter Gulia]

Beyond the other suggestions, if the debtor served as the plan's administrator and a bankruptcy trustee is serving in the debtor's liquidation or reorganization case, the bankrupty trustee must "continue to perform the obligations required of the [plan] administrator[.]" 11 U.S.C. 704(a)(11), 1106(a)(1).

As David Rigby suggests, a recordkeeper should satisfy itself that a person who seeks to instruct those services for which the recordkeeper follows the plan administrator's instructions is in fact the bankruptcy trustee duly appointed by the court.

To the extent that the trust agreement provides for the trustees to follow the plan administrator's directions, they may follow only those that are "proper" (genuine and not contrary to the plan or ERISA), and they must decline to follow an instruction that is not proper.

While the bankruptcy trustee likely has power (because the relevant documents likely put power to remove and appoint plan trustees in the plan sponsor or the plan administrator) to remove a trustee and appoint another, a removed trustee's service doesn't end until his or her successor has been appointed and has begun service.