The Department of Labor’s Employee Benefits Security Administration (EBSA) is proposing to allow bankruptcy trustees to take advantage of the agency’s Abandoned Plan Program regulations under ERISA to terminate, wind up, and distribute retirement plan benefits to former employees of bankrupt companies. The Abandoned Plan Program in its current form establishes guidelines on when individual account plans, including 401(k)s, can be considered “abandoned” by their sponsoring employers; sets forth streamlined benefit termination and distribution procedures; and limits potential fiduciary liability of financial institutes that ultimately wind up and terminate the abandoned plans. The proposed rule would amend this program by making the process available to Chapter 7 bankruptcy trustees, who often have responsibility for administering abandoned plans. In conjunction with the proposed rule, the EBSA is seeking to amend the related class exemption to permit bankruptcy trustees to pay themselves from the assets of the plan (ordinarily considered a prohibited transaction) for terminating and winding up a Chapter 7 plan under an industry rates standard.
In a news release, EBSA’s Assistant Secretary of Labor Phyllis C. Borzi said:
The rule we’re proposing today is designed to help workers and retirees of bankrupt companies gain access to their retirement money sooner. Far too often, the retired workers of these companies are unable to obtain their hard-earned retirement savings in a timely way. The legal status of a former employer should not impede retirees’ access to their own funds, especially at the very time they need them most. . . The proposed rule would extend the department’s current Abandoned Plan Program to these retirement plans, and enable Chapter 7 bankruptcy trustees to more quickly and efficiently distribute retirement benefits to participants. The rule also would reduce the possibility of participants’ accounts being eroded by excessive and unnecessary fees.
The EBSA has made available a fact sheet on this proposed rule.
Comments on the proposal must include the Regulation Identifier Number (RIN) 1210-AB47 and be submitted on or before February 11, 2013. Comments may be submitted electronically through the federal eRulemaking Portal or via email to: e-ORI@dol.gov, (subject line: RIN 1210-AB47). Alternatively, written comments may be sent to: Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210, Attention: Abandoned Plans.