Frozen plan for closed company

[SoCalActuary]

A plan sponsor went out of business, and their employees had benefits transferred into a MP plan, including some beneficiary accounts of deceased employees.

The trustee agreed to remain the sponsor of the plan.

But we look back and see that the MP language was drafted to cover only employees. There are none.

Suggestions?

[QNPG]

A plan sponsor went out of business, and their employees had benefits transferred into a MP plan, including some beneficiary accounts of deceased employees.

The trustee agreed to remain the sponsor of the plan.

But we look back and see that the MP language was drafted to cover only employees. There are none.

Suggestions?

When you say the "trustee" has agreed to remain the sponsor of the plan, what exactly do you mean? Rev. Rul. 2008-45 provides that "The exclusive benefit rule of § 401(a) is violated if the sponsorship of a qualified retirement plan is transferred from an employer to an unrelated taxpayer and the transfer of the sponsorship of the plan is not in connection with a transfer of business assets, operations, or employees from the employer to the unrelated taxpayer".

When the plan sponsor went out of business, shouldn't the plan have been terminated at that time?

[david rigby]

When the plan sponsor went out of business, shouldn't the plan have been terminated at that time?

Depending on the meaning of "went of business" and the precise wording of the document, the plan may have automatically been terminated.

[SoCalActuary]

None of these responses discuss plans for a group of terminated former employees, essentially a wasting trust situation, because there are no plan sponsors left.

Anyone with experience on plans that remain in place until all benefits can be distributed?

The situation that prevents plan termination is that assets are not liquid.

[QNPG]

None of these responses discuss plans for a group of terminated former employees, essentially a wasting trust situation, because there are no plan sponsors left.

Anyone with experience on plans that remain in place until all benefits can be distributed?

The situation that prevents plan termination is that assets are not liquid.

I hope this helps you, SoCal:

Excerpt from ERISA outline:

Fiduciary safe harbor available for rollovers under terminated DC plans. A regulation issued in conjunction with regulations on the termination of abandoned (or “orphan”) defined contribution plans creates a fiduciary safe harbor option when amounts are rolled over under a terminated defined contribution plan, even if the amount exceeds $5,000. See DOL Reg. §2550.404a-3, 71 F.R. 20820, 20828-20830, 20850-20853 (April 21, 2006). One of the conditions under the orphan plan regulation for winding up the affairs of the orphan plan requires the qualified termination administrator (QTA) rollover to an IRA (an inherited IRA, as described in IRC §402©(11), in the case of a non-spouse beneficiary) the benefits payable from the orphan plan to a participant or beneficiary who does not file a timely affirmative election with respect to the distribution. DOL Reg. §2550.404a-3 provides fiduciary relief with respect to the rollover of the funds to an IRA (or other account), along the lines of the fiduciary safe harbor under DOL Reg. §2550.404a-2 that applies to automatic rollovers under IRC §401(a)(31)(B) (see the discussion in Part D.8.b. of this section for more details). This fiduciary safe harbor is not limited to abandoned defined contribution plans. It also applies to any rollovers made from any terminated defined contribution plans with respect to participants or beneficiaries who fail to make an affirmative election with respect to a distribution. It does not matter whether the participant’s or beneficiary’s failure to make an election is merely due to unresponsiveness or because the whereabouts of the participant or beneficiary are not known. Like the fiduciary safe harbor under DOL Reg. §2550.404a-2, the safe harbor under DOL Reg. §2550.404a-3 deems the plan fiduciary to have satisfied the requirements of ERISA §404(a) with respect to both the selection of the IRA provider (or other account provider) and the investment of the distributed funds in such IRA or other account.

Regulations permit “qualified termination administrator” to terminate and liquidate abandoned or orphan plans. Regulations issued by the DOL facilitate the termination of, and distribution of benefits from, defined contribution plans that have been abandoned by their sponsoring employers (“orphan plans”). See DOL Reg. §2578.1, Appendixes A through D to §2578.1, §2520.103-13, 71 F.R. 20820, 20828-20830, 20850-20853 (April 21, 2006). The DOL is concerned that the assets of these plans are diminished by ongoing administrative costs, rather than being paid to the participants and beneficiaries of the plan. The regulation allows certain financial institutions who hold plan assets to become “qualified termination administrators” (QTAs) of abandoned plans and proceed with termination and liquidation of the plan. The QTA is able to hire other service providers to carry out the termination. Both the QTA and the retained service providers may receive reasonable compensation from the assets of the orphan plan. A class exemption (PTE 2006-06), which is discussed in Section II, Part E.13., of Chapter 14, provides prohibited transaction relief with respect to fees paid to the QTA, its affiliates, and other service providers. Distributions from orphan plans will generally be rolled over to IRAs (unless the participant elects otherwise). Thus, in conjunction with these regulations, a regulation providing a fiduciary safe harbor for rollovers to IRAs (and to certain other bank accounts) is provided (DOL Reg. §2550.404a-3) (see 5. above). The fiduciary safe harbor goes beyond the safe harbor under §2550.404a-2, which generally applies only to automatic rollovers of mandatory distributions, pursuant to IRC §401(a)(31)(B), that do not exceed $5,000.

[SoCalActuary]

Thanks for your thoughtful research. If distribution to IRA was feasible at this time, it would involve liquidating the mortgage.

That would be difficult.

But there are other plans for closed groups of former participants, especially DB plans, where the plan continues to operate without a plan sponsor.

Your reference is not directed at those plans. Any more ideas?