Has anyone been court appointed to terminate a plan?

[Guest Bearlee]

This is pursuant to the EPCRS Orphaned Plan's "Eligible Party" which can be a person appointed by the court with authority to terminate the plan and dispose of its assets.

I'd like to hear your feedback as to how procedurally one does this. And does ERISA preempt this kind of appointment so that it be done in Federal Court only? I doubt it, but I just had to ask. Thanks again for your feedback.

[Peter Gulia]

Any participant or beneficiary of an abandoned plan could sue. Although such a plaintiff eventually should be awarded a reimbursement of court costs and attorneys’ fees from the breaching fiduciary (if found and able to pay) or from the plan’s assets, in my experience few participants pursue their rights.

If an EBSA investigation confirms the abandonment and EBSA is unsuccessful in getting a fiduciary to take charge, the Secretary of Labor sometimes files in a Federal court an action asking the court to appoint an independent fiduciary to wind up the plan. On an action for equitable relief, such as removing a breaching fiduciary and appointing a successor fiduciary, the Federal courts have exclusive jurisdiction (even if all parties are citizens of the same State and the amount in controversy is tiny). ERISA § 502(e)&(f). Usually, the EBSA office has lined-up its proposed independent fiduciary before the Solicitor’s office files the complaint. Some lawyers who serve as an abandoned plan’s independent fiduciary agree to serve for a limited fee that’s way below normal fee rates, and sometimes below the fiduciary’s out-of-pocket expense. Some of us are exploring doing it in a public-charity form.

Because of the many thousands of abandoned plans, EBSA officials choose which cases have enough bad facts or public-relations value to use the DoL Solicitor’s office for this litigation. Also, EBSA prefers cases in which it’s not feasible for a bank or insurance company to volunteer to serve as the abandoned plan’s qualified termination administrator. However, because the vast majority of eligible financial institutions don’t accept the QTA role, after EBSA has exhausted its cajoling efforts EBSA evaluates those cases for litigation.

As pro bono work, some private lawyers are willing to file a complaint without a fee, or for no more than whatever the court in its discretion awards.

If you’re thinking about a particular plan and I might help you or a participant evaluate your or his or her choices, please feel free to call me.

[Peter Gulia]

My description above assumes an ERISA-governed plan.

If a plan is governed by State law, it's more likely that a petitioner might be required to, or might prefer to, pursue the plan's relief in a State court.

But except for church and governmental plans (which aren't often abandoned), it's uncommon for a plan to have a remaining participant or beneficiary other than the abandoning fiduciary and yet not be governed by ERISA.

[alexa]

My description above assumes an ERISA-governed plan.

If a plan is governed by State law, it's more likely that a petitioner might be required to, or might prefer to, pursue the plan's relief in a State court.

But except for church and governmental plans (which aren't often abandoned), it's uncommon for a plan to have a remaining participant or beneficiary other than the abandoning fiduciary and yet not be governed by ERISA.

Had a question-

I have a ERISA 401k plan whose plan sponsor is in Chap 7 liquidation bankruptcy since October 1st, 2009. There is a Bankruptcy Trustee(BT).

The BT wants to designate my acquaintance's firm as the QTA and doesn't want to have to sign anything;e.g. plan resolutions, amendments. Can that be done? How? via Form 2848?

I have briefly read on a very high , quicky & dirty level<gr> the DOL's orphan procedure.

I am assisting the acquaintance firm with operational due diligence and compliance. We were going to terminate the plan at 12/31/2009 and file the termination with the IRS to obtain a favorable letter upon plan term. But in reading the orphan plan procedure, it appears to not require this? Although filing with the IRS is optional, I always recommend it to my clients

Any information would be appreciated since I am a newbie to plans whose sponsor is in bankruptcy.

Thanks

Lexy

[Peter Gulia]

Unless a bank or insurance company seeks more responsibility, it seems unlikely that it would seek an appointment as a qualified termination administrator.

Rather, a bankruptcy trustee's duties include the employer/debtor's role as an employee-benefit plan's administrator (if the debtor or a person it appointed so served when the bankruptcy case began). 11 U.S.C. 704(a)(11).

A bankruptcy's creditors might object to paying plan-administration expenses out of the bankruptcy estate, and instead might insist that these expenses be chargeable only against the plan.

If the plan bears expenses, a plan fiduciary must consider whether an expense is "reasonable". Along with other facts and circumstances, whether incurring an expense to get the comfort of an IRS determination is "reasonable" might turn on the distribution amounts involved, how many or few distributees would choose a rollover, and what taxes might apply if an attempted rollover is not treated as a rollover.

[alexa]

Unless a bank or insurance company seeks more responsibility, it seems unlikely that it would seek an appointment as a qualified termination administrator.

Rather, a bankruptcy trustee's duties include the employer/debtor's role as an employee-benefit plan's administrator (if the debtor or a person it appointed so served when the bankruptcy case began). 11 U.S.C. 704(a)(11).

A bankruptcy's creditors might object to paying plan-administration expenses out of the bankruptcy estate, and instead might insist that these expenses be chargeable only against the plan.

If the plan bears expenses, a plan fiduciary must consider whether an expense is "reasonable". Along with other facts and circumstances, whether incurring an expense to get the comfort of an IRS determination is "reasonable" might turn on the distribution amounts involved, how many or few distributees would choose a rollover, and what taxes might apply if an attempted rollover is not treated as a rollover.

I think you may have missed the jist of my question.

Who can sign resolution and amendments to the plan?

thanks

[Peter Gulia]

Although I don't here give advice to anyone, one guesses that a bankruptcy trustee's powers include those implied by his or her duties.

So if amending an employee-benefit plan is an act that a bankruptcy trustee decides (with court approval, or an absence of disapproval) is necessary and prudent for an orderly administration (and termination) of the plan, one guesses that the bankruptcy trustee has power to amend the plan.

BenefitsLink mavens, what's your experience?

[K2retire]

We've heard from some bankruptcy trustees who were indignant that we would ask for something indicating that they were also supposed to become the plan trustee, and others who were equally convinced that they were not responsible for the plan.

We have been advised that the bankruptcy trustee has authority to perform any task that would have oridinarily been the responsibility of the employer.

[alexa]

We've heard from some bankruptcy trustees who were indignant that we would ask for something indicating that they were also supposed to become the plan trustee, and others who were equally convinced that they were not responsible for the plan.

We have been advised that the bankruptcy trustee has authority to perform any task that would have oridinarily been the responsibility of the employer.

The Bankrupty Trustee(BT) wants to assign this to another company serving as a Plan Agent. Would a Power of Attorney 2848 be sufficient signed by the BT?

Looks like Tax Form would be 5500 & 5300

But how do you list plan amendment and resolutions on Form 2848?

Thanks

Lexy

[Peter Gulia]

K2retire, thank you for confirming one of my suspicions: that, as we approach the five-year anniversary of the law change, some (perhaps many) bankruptcy trustees continue to resist a duty to administer employee-benefit plans.

alexa, although a plan's sponsor or administrator might sign a Form 2848 or other power of attorney naming a representative authorized to communicate for the sponsor or administrator, a Form 5500 ordinarily requires the signature of the plan's administrator (not the administrator's agent), and a Form 5300 generally requires the signature of the person that applies for the IRS's determination (not the applicant's agent).

Further, unless the plan already provides the desired agent power to amend the plan, it is the bankruptcy trustee that arguably has power to amend the plan to the extent that he or she acts for a successor to the plan sponsor or within the bankruptcy-law powers to administer the plan.

[alexa]

K2retire, thank you for confirming one of my suspicions: that, as we approach the five-year anniversary of the law change, some (perhaps many) bankruptcy trustees continue to resist a duty to administer employee-benefit plans.

alexa, although a plan's sponsor or administrator might sign a Form 2848 or other power of attorney naming a representative authorized to communicate for the sponsor or administrator, a Form 5500 ordinarily requires the signature of the plan's administrator (not the administrator's agent), and a Form 5300 generally requires the signature of the person that applies for the IRS's determination (not the applicant's agent).

Further, unless the plan already provides the desired agent power to amend the plan, it is the bankruptcy trustee that arguably has power to amend the plan to the extent that he or she acts for a successor to the plan sponsor or within the bankruptcy-law powers to administer the plan.

What needs to be done to get the Plan Agent power to amend the plan, sign Form 5500's, etc...?

Thanks

[alexa]

Yes I am familiar with what you speak. I have filed many 5300 series for new & restated & terminated plans over the years; I have a CAF # but my authority is only to file on behalf of the plan sponsor/plan administrator and receive copies of correspondence and respond to any requests for changes and or question again on behalf of the plan sponsor who is the one on the hook if you will for any issues. The sponsor delegates me for this specific form only on the Form 2848, Power of Attorney.

I just got the prototype plan doc and am going to review who is designated to amend the plan currently and perhaps who the plan adminstrator is. Usually docs I have found to be very generic and don't actually spell out the name or even title of the Plan Administrator. Typically, in my experience it has been an officer of the Company (CFO or CEO in a small company and perhaps in a bigger co the VP, HR)

I suggested to the Plan Agent that it may be more efficient to have current TPA bring the plan up to snuff for any final regulatory amendments and as part of the freeze/term resolution change the Plan Administrator to the Plan Agent that the bankruptcy trustee wants.

I am gathering that the BT has this power to execute this amendment/resolution as you indicate above since charged with winding up the plan and paying out all benefits?

I am assuming the BT is a fiduciary in this capacity and doesn't relieve himself from such duty even if he wants to assign PLan Adminstrator duties to the Plan Agent? I then assume that the Plan Agent is now a fiduciary. She had indicated that I should be added along with her- I told her that I do not want to become a fiduciary , so forget about adding me; she can sign all the papers she likes!<gr> but count me out. I am recommending she have/get fiduciary liability insurance. If we file with the IRS for a favorable term letter, I can be designated on the Power of Attorney for this purpose only.

What type of document would give the BT the power to amend the plan or sign Form 5500's etc... Maybe I just missed it in the back and forth? I assume it may be some type of court order as part of the bankruptcy? This is a first for me;i..e terminating a plan which is in Chapter 7 bankruptcy

Also, in familiarizing myself with the DOL "orphan plan" rules, it appears that the orphan plan may not need to be restated to bring it in complete compliance with all laws to date of termination/distribution of assets. It also appears that filing with the IRS is not a requirement either (although always was an option anyways but I recommend it to my clients)

The IRS will accept the orphan filing with the DOL as long as plan participants are given the proper 402f? notice and if the plan has annuity forms to follow those rules. If errors have been made, IRS has said that the plan could go thru the 1 of the VCP corrective procedures.

I mentioned to the Plan Agent that she get a good ERISA attorney prior to starting the process. I will keep you in mind if she asks me for names of a few folks.