Power of receiver to amend a 401(k) plan?

[masteff]

Okay legal boffins I could use a bit niche expertise...

Company I've worked at since February is in financial distress. Bank is in process of having a receiver appointed in Federal court. Draft of order of appointment does not explicitly grant power over the 401(k). Does that matter? We have a safe harbor match that I'm advising should be suspended (I'm working w/ TPA to be sure our annual notice includes paragraph that safe harbor match maybe suspended or reduced as per the 2013 final reg). Board and all officers have all resigned so it will fall to the receiver to make the decision and sign the necessary plan amendment(s).

Does a Federal receiver have power over the plan in general or should that power to be explicitly granted by the court? If there's a code section that pertains, that would be great to have.

Thanks for any input you might have!

Mike (masteff)

[jpod]

If the party responsible for amending the plan is the "company" to which you refer (and not, for example, a committee appointed by that company), I think it is probably very safe to assume that the receiver and only the receiver can amend the plan, and no further court order is necessary. There is no Internal Revenue Code section or ERISA provision that addresses this.

[masteff]

If the party responsible for amending the plan is the "company" to which you refer (and not, for example, a committee appointed by that company)

Yes, plan specifies "Employer" has power to amend and "Employer" is defined as the entity identified in the Adoption Agreement which is the company.

The draft appointment order contains a line which says "perform all services and take all actions necessary or advisable to oversee, carry on, manage, care for, maintain, repair, insure, protect, and preserve (collectively, “Manage”) the Assets and Operations, without further order of the Court".

I guess part of my concern comes from experience w/ powers of attorney for participants. When I was in full time plan administration 10 years ago, our counsel insisted that POAs had to be very explicit about the power to make changes affecting our retirement plans. But I gather from reading that a receiver has full "carte blanche" to run the business.

[jpod]

Entirely different scenario here.

[MoJo]

I think it would be incredibly "prudent" for the order to 1) specify that the receiver has the power to amend the plan as may be necessary (the "plan: is not part of the assets or the company, nor it's operation - although the obligations inherent in maintaining a plan may be a "liability" against those assets, and 2) specifying that the receiver, as such, may make fiduciary decisions as part of managing the enterprise under receivership, and that when he or she does so, that they will be doing so as an ERISA fiduciary and be protected from claims of creditors (against the company) when doing so may impact the assets of the company.

The last few times I've seen a receiver appointed, such language has been included in the order (or sought by the "very knowledgeable" receiver once appointed). Seems to me that the role of employer as fiduciary is different from the role of employer as business manager, and if the receiver is going to wear the "settlor" hat, then they (or someone else) needs to wear the "fiduciary" hat.

[GBurns]

I do not see the connection between amending the plan and the plan assets. In fact, I do not see how plan assets are involved.

The receiver is taking over the functions of the CEO and Board. Some would opine that a Receiver, in most cases, also takes over the functions of the shareholders. As such, in this case, the Receiver is also taking over the functions of the Plan Sponsor.

A Plan Sponsor has the power to amend the Plan and is by default, an ERISA fiduciary. Why would there be any need to specify these normal activities?

[masteff]

Thanks for all of the input!

Our corporate counsel replied that I should ask the receiver once he's appointed. I'll post back what the receiver says.

One additional thought I've had is preemption and whether it matters if the receivership is done in a Federal versus a state court.

[masteff]

FYI - Met the receiver yesterday. He said yes, he has the power to amend the 401(k) plan. I didn't get into any nuances of the question but he was very confident of his authority to control the plan.

[david rigby]

Check the document. I've seen plans that state the plan is automatically terminated if ...

Although "bankruptcy" has not been mentioned, other conditions might apply.

[masteff]

Check the document. I've seen plans that state the plan is automatically terminated if ...

Although "bankruptcy" has not been mentioned, other conditions might apply.

Good point. I flipped thru and didn't find anything but will send the order of receiver appointment to our TPA and have them review the plan (it's their VS plan) just to be sure.