Bankruptcy & plan termination

[Guest mbv]

We are the TPA & recordkeeper for a 401(k) plan for which the employer has gone into receivership. We have been trying to terminate this plan for quite some time.. 8-10 months however, there is about $1700 of late deposits & lost earnings due to the plan. The receivership attorney has authorization from the IRS to deposit into the trust however is now claiming there may be other "expenses" that will deplete the funds of the "estate" and he is not sure if he will be able to fund the late deposit amount.

I am at a loss .. I explained that the $1700 represents pre-tax deferrals - and failure to remit is tantamount to stealing wages .. These funds do not represent corporate assets and that there are plan assets...Hence the prohibitted transaction etc.

A suggestion to proceed with the plan termination & distributions now.. and let the receiver attorney deal with any future deposits etc. on their own... I am not in agreement - I would like to see the plan compliant before distributing all assets.

Any ideas/suggestions would be greatly appreciated.

[MSN]

On similar issues, we have had success engaging EBSA to assist in convincing the reciever to make deposits into the plan prior to paying corporate expenses. Like you, I couldn't, in good conscience, simply ignore this issue.

[Peter Gulia]

A person seeking to help protect the retirement plan might remind the bankruptcy trustee that he, as the plan's administrator, has fiduciary duties to the retirement plan.

However, it's unclear what a bankruptcy trustee should do if his or her duties to a retirement plan are in conflict with his or her duties to the bankruptcy administration.

In those circumstances, a trustee might consider whether to ask a Federal district court to decide what to do.