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Sponsor asks: Downside to abandoning a plan?


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This plan sponsor went out of business almost a decade ago, but the plan seems to have never been terminated. Now the DOL is trying to get it paid out after several participant calls.

Of course,the DOL recommends that the plan be brought into full compliance and then paid out, and the plan sponsor has approached me to help with this. But we're talking a decade here - the DOL seems willing to waive the annual reporting, but then we've got amendments, VCP issues for late restatements/amendments, possible SSA and SAR issues with the IRS, etc.

That's when I realized that just abandoning the plan would be much easier (and faster). The DOL has confirmed that all deposits have been made, and they just want it done. The money is at a product platform, and I believe they can be a QTA (whether they want to be might be another question). The DOL admitted that the plan sponsor could do that... but then the sponsor asked what were the consequences to him.

I can't find anything on this, and the DOL agent is also similarly stumped. Anyone have any ideas? I'm thinking that if all the money is in the plan, there wouldn't be any consequences, but I obviously don't want to say that and then see him hit with a massive penalty from out of the blue. Thanks.

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I have several experiences with abandoned plans, including responding to EBSA investigations, advising a natural person when EBSA asserts that she is responsible to administer the plan, advising service-provider businesses about whether to serve as a QTA, and serving as a plan's court-appointed fiduciary.

I can help you think through how to address your inquirer's questions (and some protections your firm, if engaged, should get), but doing so involves more facts, and some observations that I don't want to publish on a website, especially one that EBSA employees read. You're welcome to call me.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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Just wondering - hasn't there already been an abandonment here?

I would presume that the plan contains provisions governing removal of the plan administrator and the trustee and termination of the plan. If no actions consistent with those provisions have been taken to remove the plan administrator and the trustee, aren't they already subject to personal liability for failure to carry out their duties?

Wouldn't it be in the best interests of all concerned that steps be taken to formally terminate the plan and properly distribute the benefits?

Always check with your actuary first!

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Yes, indeed seek out competent advice.

But also take note of inconsistencies from your original post:

- If the sponsor really did go "out of business" (yes, this can mean different things to different people), then the plan may have been automatically terminated.

- If there is no plan sponsor, it cannot be "brought into full compliance".

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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I had a situation similar to this - and the question that was central to the resolution was "was the plan truly abandoned." In my case, a company was sold and the executives of the sold company went to work for the acquirer. The continued to receive plan level information (trust reports), and even met with service provider representatives once or twice to discus how to wind down the plan - which never happened, for about 10 years. The plan was NOT abandoned. The execs were considered to have remained fiduciaries of the plan, albeit negligent in their duties. They claimed they didn't know what to do, didn't have the resources to do it (the plan sponsor was non-existent), and couldn't find the remaining participants (although they really didn't try). Truly, their "hearts" were in the right place - but they didn't have good advisors to help them and it just dragged on. The recordkeeper should have been more aggressive in getting the thing resolved and terminated.

Because the plan was NOT abandoned in the eyes of the DOL (and no one really wanted to spend the time or money challenging that), it had to be "resurrected", made compliant, and terminated. The DOL was not really "antagonistic" in this matter (probably because there were no participant complaints and the plan had lost contact with the 9 remaining participants - with about $500,000 in assets!) but they insisted on a VCP filing to correct the out of date documents, and termination. Wasn't cheap..... But no other penalties.

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