lump sum payouts after bankruptcy filing

[erisageek1978]

Client initiated a standard termination of a 403b then filed for bankruptcy last week.  NOPBs were sent out earlier and many participants chose lump sum payments.  Some were paid out before the filing, others made requests (8 requests) but no payouts have been made on those yet prior to the bankruptcy filing. 

Do the lump sum payouts have to end on bankruptcy filing? or can the lump sum payouts still be made if over 80% funded?

[justanotheradmin]

I'm confused. Are there contributions owed to the 403(b)? By the employer? 

Is your question related to a defined benefit plan and not a 403(b)? 

[Peter Gulia]

If this § 403(b) retirement plan is an individual-account (defined-contribution) plan, why would a participant’s or beneficiary’s account be less than 100% funded?

[erisageek1978]

yes i meant defined benefit plan. 

[TheBoxMan]

I may be misinterpreting the question. But, if the plan is doing a "standard termination" of a qualified defined benefit plan...the plan needs to be fully funded to pay all of the benefits owed. There is no option to say "we don't have enough money to pay the lump sums" in a standard termination.

[justanotheradmin]

The bankruptcy trustee or plan administrator should contact an ERISA attorney if they do not know how the plan should be treated during the employer's bankruptcy. 

If the plan is PBGC covered they should likely be contacted immediately as well, and the plan termination would go through them. 

If the plan is underfunded - the plan administrator will need to see if they need to make a claim for employer assets as part of the bankruptcy. 
In very small plans, there are occasionally options for an owner to forego benefits, but you should really talk with an actuary and ERISA attorney. 

[Peter Gulia]

Along with justanotheradmin’s guidance:

Recognize that there might be differences between the employer’s reorganization bankruptcy and the employer’s liquidation bankruptcy.

Also, some points of bankruptcy law, trust law, and other nonbankruptcy law apply differently regarding a charitable organization’s insolvency, especially if there are trusts dedicated to particular purposes.