Blogging Employee Benefits

April 23, 2006

Abandoned Individual Account Plans

Filed under: 401(k), DOL, Termination (Plan) — Fuguerre @ 9:52 am

Qualified termination administrators may wind up the affairs of abandoned individual account plans under final regulations and a class exemption published by the Department of Labor. [71 FR 20819 (regulations); 71 FR 20855 (class exemption); 06-717-NAT (press release); Fact Sheet; Abandoned Plan Program. See also the 11/8/2002 report of the ERISA Advisory Council's Working Group on Orphan Plans.] The regulations and class exemption are effective May 22, 2006.

  • Qualified Termination Administrator (QTA)- To qualify as a QTA, an institution must meet two conditions: (1) the institution must be eligible to serve as a trustee or issuer of an individual retirement plan; and (2) the institution must be holding the assets of the plan for which it will serve as QTA. See the Model Notice of Plan Abandonment and Intent to Serve as Qualified Termination Administrator.Only one institution should serve as a plan's QTA. If more than one institution holds assets of the plan, then the other institutions are expected to cooperate with the QTA.
  • Determination of Plan Abandonment– An individual account plan, such as a 401(k) plan, will generally be considered abandoned if no contributions to or distributions from the plan have been made for at least 12 consecutive months, and if the QTA has determined that the plan sponsor no longer exists, cannot be located, or is unable to maintain the plan.
  • Deemed Termination– An abandoned plan will be deemed terminated on the 90th day following the DOL's acknowledgement of receipt of the notice of plan abandonment. The plan termination will not go through or will be delayed if either the plan sponsor or the DOL objects to the proposed termination. The DOL may waive some or all of the 90-day period, in which case the plan is deemed terminated when the DOL provides notice of the waiver to the QTA.
  • Winding Up the Affairs of an Abandoned Plan– The regulations provide procedures for a QTA to conclude the affairs of an abandoned plan, including –
    • Notification to the DOL before and after winding up the affairs of and terminating the plan;
    • Locating and updating plan records;
    • Calculating amounts payable to plan participants and beneficiaries;
    • Notification to plan participants and beneficiaries regarding the plan termination and individuals' rights and options;
    • Distribution of amounts to participants and beneficiaries; and
    • Filing a summary terminal report.

    Reasonable expenses incurred in the plan's winding-up and termination may be paid from plan assets. The regulation includes provisions addressing the allocation of expenses and unallocated assets (e.g., forfeitures or amounts in a suspense account), including rules for situations where a plan document is unavailable or ambiguous. The QTA must notify the DOL of any known delinquent employer contributions, but is not required to collect delinquent contributions on the plan's behalf.

    The QTA is not required to amend the plan in order to proceed with the plan's winding-up and termination. Rather, the plan is deemed to have been amended to the extent necessary for the QTA to conduct its responsibilities.

  • Limited Liability– If the QTA conducts its duties in accordance with the regulations, then it will be deemed to satisfy its responsibilities under ERISA §404(a), except with respect to selection and monitoring of service providers. If service providers are selected and monitored prudently, then the QTA will not be held liable for service provider acts or omissions about which the QTA has no knowledge.
  • Plan Qualification– Although not directly within the scope of the DOL's own enforcement authority, the preamble to its regulations state that the IRS will not challenge the qualified status of any plan terminated under the regulation or initiate any adverse action against the QTA, the plan, or any participant or beneficiary, provided the QTA satisfies three conditions –
    • Survivor Annuity Requirements – The QTA must reasonably determine the extent to which the survivor annuity requirements apply to benefits payable under the plan and take reasonable steps to comply with those requirements if applicable.
    • Vesting – Each participant and beneficiary must have full nonforfeitable rights to accrued benefits as of the date of deemed termination, subject to income, expenses, gains and losses between that date and the date of distribution.
    • 402(f) Notice – Participants and beneficiaries must receive notice of their rights under IRC §402(f).
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