The U.S. Department of Labor’s Employee Benefits Security Administration announced a proposed rule that would expand its Abandoned Plan Program to include individual account plans, including 401(k) plans, of companies in Chapter 7 bankruptcy (a “Chapter 7 Plan”). Under the current rule, only large financial institutions and other asset custodians can serve as administrators of abandoned plans, and a plan is considered abandoned only after no contributions or distributions have been made for at least 12 months. Under the proposed rule, a Chapter 7 Plan would be considered abandoned on the date the plan sponsor’s bankruptcy proceeding commences. A bankruptcy trustee, or its designee, could then take advantage of the Abandoned Plan Program’s streamlined plan termination and benefit distribution procedures. As a result, plan participants would likely see fewer administrative and termination fees charged to their accounts and could receive benefit distributions more quickly. Additionally, the proposed rule permits a bankruptcy trustee to pay itself from plan assets, an otherwise prohibited transaction. But unlike other abandoned plan administrators, a bankruptcy trustee would have a duty to report activity it believes to be evidence of fiduciary breach by a prior plan fiduciary. The proposed rule can be found here.
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Department of Labor proposes rule to speed distributions to participants of plans sponsored by bankrupt companies
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