Settlement Check

[52626]

The Plan Sponsor received a check for a settlement on an investment that has not been in the plan for over 8 years. The payment was less then $700. Going back to the time when the asset was held in the plan is impossible. Is there any guidance that will allow the employer to deposit the funds in the holding account and use to offset fees? Allocating the funds to the current participants would result in pennies to each participant.

Thoughts on what to do?

Thanks

[Bird]

We use those checks for fees whenever possible...I don't remember the cite but am quite sure that is ok.

[BG5150]

We use those checks for fees whenever possible...I don't remember the cite but am quite sure that is ok.

From FAB 2006-1:

As plan assets, the proceeds of the settlement may not be used to benefit employers, fiduciaries or other parties in interest with respect to the plan. Sections 403© and 406 of ERISA. Such proceeds should not be used to offset an employer’s future contributions to the plan, unless such use is permissible under the terms of the plan and would not violate applicable provisions of the Internal Revenue Code (e.g., such as when amounts involved would be considered “forfeitures” under the terms of the plan). However, we believe that a plan fiduciary, consistent with its obligations under sections 404 and 406,⁽⁹⁾ may reasonably conclude that certain participant-level allocations that are not “cost-effective” (e.g., allocations to participant accounts of de minimis amounts) may instead be used for other permissible plan purposes, such as the payment of reasonable expenses of administering the plan.

[Belgarath]

Also, from that FAB, see the following. I think this would be highly unusual in an on-going plan, but I've seen this used in plans that have terminated and already had all distributions processed.

It is the view of the Department that compliance with ERISA’s fiduciary rules generally will require that a fiduciary accept a distribution of settlement proceeds. The Department recognizes, however, that in rare instances the cost attendant to the receipt and distribution of such proceeds may exceed the value of such proceeds to the plan’s participants. In such instances, and provided that there is no other permissible use for such proceeds by the plan (e.g., payment of plan administrative expenses), it might be appropriate for a plan fiduciary to not accept the settlement distribution.