Plan Termination Fees to Participants

[perkinsran]

I have an unusual situation. Company A sells their company to Company B. Company A sponsors a 401k plan but Company B by nature of the sale does not decide to sponsor that plan but set up their own plan. Company A sets a termination date for their plan and owners take their distributions from the plan. All participants of company A are now terminated from Company A and are participants in Company B. They have requested Distributions/Rollovers from company A plan. TPA that is executing the plan termination has held the distributions to the remaining participants and now indicates that termination expenses will be charged to the remaining participants.

Considering that the owners of Company A had the largest balances in the plan and have taken their assets, have they not breached their fiduciary responsibility? Can they legitimately charge plan termination fees to participants? Are these not settlers expenses? What is being done wrong here?

[Lou S.]

There are absolutely some fiduciary issues with the owners taking their money and leaving the rank and file with the bill.

[hr for me]

Last time we terminated our 401k plan (2008 or so), the plan trustees could not be paid out until all the employees had been paid out. I actually thought it was a good policy to keep the plan trustees "in the game" until it was totally closed. Unlike when I found out (From the DOL/IRS) that there had been a plan back before 2005 that never got fully closed out and still had a small balance left.

Definitely think it is hokey that the owners got out before this was possibly charged to everyone else.

[Mike Preston]

If the plan was first terminated and then the owners were able to request a distribution earlier than the non-owners there is definitely a benefits, rights and features violation with or without the fee issue. Probably a failure to follow plan terms violation, too. Somebody should tell the owners that the money they no doubt rolled is subject to immediate taxation because the plan could very well be disqualified due to their actions. Then head on over to your friendly neighborhood ERISA lawyer for some guidance on what they should do to fix this.

I know I'd suggest that they took distributions of in excess of what they were entitled to and suggest that they follow the EPCRS procedure to recover that excess. The amount of that excess would be determined as their pro-rata share of the expenses charged along with a share, if any, of any trust value decline which took place after their distributions and before the non-owners were paid. But that is just me.

[david rigby]

This is off-topic, but just in case:

The sequence of events in the original post suggests that the decision to terminate Plan A was terminated after the company was sold. If that is correct, and if the sale was stock/ownership of A (rather than merely assets of A), then the (now former) owners of A may not have had any authority to initiate a plan termination.

[mbozek]

In addition to the BRF question of shifting the entire cost of plan termination to the non owners who are most likely nhces, there is a separate issue of whether this action would violate a DOL ruling that a plan cannot impose charges for plan administration on terminated employees which exceeds their pro rata share of the expenses.

A separate issue is what provision of the plan allowed only the owners to cash out their plan account before termination but not the non owners??? Or did someone tell the owners that the could elect a distribution? If I were a participant I would call the EBSA.

[perkinsran]

The decision was made prior to the sale to Company B to terminate the plan as Company B did not want to assume Fiduciary responsibility for a plan that they had no involvement. The termination created a distributable event for all participants. The owners initiated their rollover distribution that only was allowed due to termination of the plan. All others are being held up by TPA for processing after termination fees and other administrative fees are applied.

[QDROphile]

So the TPA has fidicuary responsibility for the travesty? Or the owners have separate authority to process distributions independent of the TPA?

[mbozek]

TPA cannot hold up processing termination applications as a condition to being paid. What does the TPAs contract provide as how it is to be paid when the sponsor terminates the plan? TPAs contract with Company A governs the terms of payment of fees for terminating the plan. Does plan permit fees for termination to be assessed from participants accounts?. TPA can sue company A to collect the fees.

[K2retire]

TPA cannot hold up processing termination applications as a condition to being paid.

But many of them still do.