Orphan Plan - How to appoint a new trustee

We have an orphan plan (doctor died in 2014, he was the only participant in the profit sharing plan).  He did not designate a beneficiary and according to the document, the assets are payable to his estate.

Daughter is the executor of the estate (doctor's wife predeceased him) .  The assets are with Morgan Stanley (approx. 1.1 mil) - MS will not take instructions from daughter, as executor of the estate, but instead requires a court order appointing a successor trustee of the plan  

The plan document has not been updated and no form 5500s have been filed so we want to terminate the plan via EPCRS and file the delinquent returns.

Do we need to file a court proceeding to appoint a successor trustee? How do you do that for a profit sharing plan?  I can't find any instructions on how to appoint a new trustee for a retirement plan.

If the decedent always was the only participant and he was not the employer’s employee (rather than a deemed employee), the plan might not be ERISA-governed and the Labor department might lack enforcement powers.

If the decedent’s daughter has been appointed as the decedent’s estate’s personal representative, one imagines the daughter has at least one lawyer available.

The daughter’s lawyer might ask Morgan Stanley what court order would satisfy them, and could petition an appropriate court for such an order.

Dear Trisports,

       It is not uncommon for a sole proprietor who maintains a tax-qualified defined contribution plans, such as 401(k) plans to act as the plan administrator and trustee and fail to make provision for successors if the proprietor is unable to perform the tasks associated with those positions. The plan administrator is generally responsible for plan beneficiary determinations, notifying plan beneficiaries of such determinations and authorizing plan distributions to beneficiaries who request benefit distributions. Plan trustees other than those who act essentially as custodians are generally responsible for the investment of plan assets, although they may delegate such authority in part.

         It is also not unusual for financial institutions and advisors with control of the plan assets to be reluctant to relinquish control of the plan assets in those situations.  It is prudent to verify the agreements those parties have with the plan. The agreements usually require them to follow the instructions of the duly appointed plan administrator and plan trustee.  The institutions and advisors often lack good procedures for accepting successor trustees and administrators, but tend to accept such instructions from the sole proprietors with little question, particularly if the proprietor is willing and able to confirm the instructions.  

        Tax-qualified plan documents usually have provisions for choosing successor plan administrators. The plan sponsor is usually given the authority to make such choices.  The estate generally steps into the shoes of the sole proprietor sponsoring the plan on the death of the proprietor. Thus, the estate’s personal representative may nominate a successor plan administrator and plan trustee, and if the nominees accept the offices, they will be duly authorized to exercise the powers of those offices.  In practice, it often takes considerable time after the proprietor’s death before a personal representative of the estate is appointed and recognizes the need to appoint these plan fiduciaries.

       One would expect an opinion of plan counsel that the successor plan administrator and trustee have been duly appointed to be accepted by the financial institution or advisor, which will then defer to those fiduciary’s instructions.  Unfortunately, this does not always occur, in which case the plan will have to seek a court order, generally from a state court, directing the financial institution and advisor to show cause why they should not be compelled to follow the instructions of the duly appointed plan administrator and duly appointed trustee and to pay the plan’s attorney fees for having to pursue this matter.

Filed Complaint in District Court with Executor as Plaintiff and Plan as Defendant. Filed under ERISA 29 USC 1001 to obtain relief under Section 502, 29 USC 1132 seeking equitable relief. Subject matter jurisdiction 29 USC 1132 (e)(1) and venue 29 USC 1132(e)(2). Defendant did not answer. Got default judgment appointing the Executor as Plan Administrator and Trustee. Then adopted resolutions terminating the Plan and distributing to Estate, the beneficiary. 

Dear Centerstage,

      Is this a similar fact pattern? How did the financial institution react to this default judgment?  

                      Albert

Trisports, along the lines of what Peter Gulia and Albert F explained above, I think I recall someone from IRS saying, like 30 years ago, that, e.g. for filing for a determination letter on termination (which was common then even for a small plan) that they would view the deceased sole proprietor's executor as succeeding to the responsibilities of the employer to wind up business, and so on that model Morgan Stanley should accept the daughter as plan sponsor. Centerstage's ploy seems very clever and worked for Centerstage, so you might consider that as well if all else fails.

If Trisports’ client were not seeking to satisfy Morgan Stanley, it might be feasible for the decedent/fiduciary’s personal representative to act without getting a distinct appointment.

But obtaining a court’s appointment might be less expensive than trying to persuade Morgan Stanley that the appointment is unnecessary.

Whether the plan is ERISA-governed or governed by State law, at least one court will have equity powers to appoint a successor fiduciary.

If the plan is governed by State law, the court with jurisdiction to appoint a successor fiduciary for the retirement plan might be the same court that appointed or recognized the executor of the decedent’s estate.

Dear Albert F, Fact pattern was corporation with one shareholder started db plan with 414(k) account, then corporation dissolved, then sole shareholder died.  Plan document said spouse could be plan admin, but spouse also deceased. No further provision in plan document to appoint successor plan admin. Once Court Order obtained, custodian of plan assets willing to accept Executor as plan administrator and trustee. Also did VCP to correct some unsigned plan documents so included request for approval of termination and liquidation of frozen plan. And of course 5500 filings. 

Dear Centerstage,

            Congratulations on your success.  Thanks for the clarification of the underlying facts. As with Trisports, the plan beneficiary is the estate. In the estate's litigation against the Plan was the defendant, who were the papers served upon. Did the complaint assert that the plan was an ERISA plan?

                        Best wishes,

                        Albert

Served Plan and Trust c/o Estate c/o Executor. Yes asserted plan is employee benefit plan within meaning of 3(3) of ERISA so subject to coverage of ERISA under ERISA 4(a). 

Dear Centerstage,

             Treas. Reg. 29 CFR § 2510.3-3 would appear to provide that the one-person corporation you represented and that Trisports represents is not an ERISA plan. Thus, I don’t understand how the federal courts has jurisdiction to decide anything about the plan.  If court intervention is required, it would thus appear only the state courts will have the requisite jurisdiction. Which court depends on the state, although the fact that the decedent’s estate is trying to obtain the pension benefits suggests that Peter is correct and the court that appointed the executor will be the appropriate court.  

                  I remain dubious about going to a court to appoint the plan administrator and trustee, which right is almost certainly granted to the executor as the successor owner of the plan sponsor under the plan terms or seeking a declaration confirming the authority of the plan administrator and trustee appointed by the executor.  If court action is needed it seems more prudent to file a complaint, petition, or order to show cause, asking why the custodian or financial institution should not be compelled to distribute the plan benefits to the decedent’s executor as directed by the plan administrator appointed by the plan sponsor, and to pay the costs and attorney fees of the action. 

                The executor would be in a stronger position to avoid authority questions from any custodian or financial institution, if the decedent’s will authorized the decedent’s executor to appoint the plan administrator and trustee for any plans sponsored by the decedent’s or any wholly-owned entity of the decedent.  In such case, the court decree accepting the probate of the will would clearly give the executor. This also addresses the possibility that none of the successor administrators or successor trustees appointed by the decedent are available at the time at issue.

Best wishes,

Albert