EBSA issues proposed regs and proposed PT class exemption on abandoned plans

 

The Employee Benefits Security Administration (EBSA) has issued proposed regulations permitting bankruptcy trustees to use the Labor Department’s Abandoned Plan Program to terminate and wind up the plans of sponsors in liquidation under chapter 7 of the U.S. Bankruptcy Code. In conjunction with the proposed regulations, EBSA has issued a proposed amendment to PT Class Exemption 2006-06, dealing with services provided in connection with the termination of individual account plans. Comments on the proposed rules are due by February 11, 2013.

The proposed regulations are designed to help workers and retirees of bankrupt companies gain access to their retirement money sooner, according to Phyllis C. Borzi, Assistant Secretary of Labor for Employee Benefits Security. “Far too often,” said Borzi, “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 regulations “would extend the Department’s current Abandoned Plan Program to these retirement plans,” Borzi said, “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,” she added.

Special rules for Chapter 7 plans

Under the proposed regulations, chapter 7 plans would be considered abandoned upon the Bankruptcy Court’s entry of an order for relief with respect to the plan sponsor’s bankruptcy proceeding. The bankruptcy trustee would then be able to establish itself or an eligible designee as the qualified termination administrator (QTA). The bankruptcy trustee or a designee would be eligible to terminate and wind up such plans under procedures similar to those provided under the Labor Department’s current Abandoned Plan Program. If the bankruptcy trustee winds up the plan under the Abandoned Plan Program, the trustee’s expenses would have to be consistent with industry rates for similar services ordinarily charged by qualified termination administrators that are not bankruptcy trustees.

The proposed regulations would require the QTA of a chapter 7 plan (whether a bankruptcy trustee or eligible designee) to report known delinquent contributions (employer and employee) owed to the plan, and any activity that the QTA believes may be evidence of other fiduciary breaches by a prior plan fiduciary that involve plan assets.

Proposed amendment to class exemption

The proposed amendment to the class exemption would expand the definition of QTA to include bankruptcy trustees and certain persons designated by them to act as QTAs in terminating and winding up the affairs of abandoned plans. The proposed amendment would limit the total amount of compensation that may be paid to a bankruptcy trustee/QTA (or any affiliate) for termination services to an amount that is consistent with industry rates for such or similar services.

Source: 77 FR 74063, 12/12/2012.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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