Trustee in Bankruptcy

[Guest Thornton]

A company maintains a profit sharing plan that permits the investment of up to 50% in qualified employer securities. The assets are pooled with no participant direction. The individual trustees invested 70% of the plan assets in qualified employer securities. The company got caught in the economic downturn, things turned south and several HCEs we either laid off or fired, including the plan trustees.

Assets other than the company stock were liquidated to make the distributions to the HCEs, driving the percentage of company stock even higher. You guessed it, the company goes bankrupt. The bankruptcy trustee as plan administrator now brings a lawsuit against the departed trustees. The plan has few assets, but it looks like a substantial recovery is possible. The company has little or no assets.

1) Can the expenses of the bankruptcy trustee be paid from the judgment recovery, which I assume are plan assets. My research has found no definitive answer. Routine administration expenses yes, but nothing about litigation expenses.

2) If the answer remains unclear, can the trustee in bankruptcy make a application to the DOL (which is watching this case) to permit the payment.

Thanks for any insight you might have.

[Peter Gulia]

If the retirement plan has few assets other than the plan's claims against breaching fiduciaries, how likely is it that the plan can raise enough money to pay the fees and expenses of the plan administrator and the plan's attorneys long enough to accomplish the win that could get a recovery for the plan?

How likely is it that even modest defense efforts could run the plan out of money so that the plan administrator would become unavailable to pursue the plan's claims?

Before concluding a decision to pursue or abandon the plan's claims against breaching fiduciaries, shouldn't the plan's administrator get an order from a Federal court that has jurisdiction over the plan?