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DOL Updates Abandoned Plan Program Rules
EBSA will publish rules to open Abandoned Plan Program eligibility to Chapter 7 bankruptcy trustees.
The Department of Labor has updated its Employee Benefit Security Administration rules and amended a prohibited transaction class exception to allow Chapter 7 bankruptcy trustees to distribute retirement plan assets to beneficiaries of the retirement plans of bankrupt companies.
The changes amend plan sponsor eligibility for the Abandoned Plan Program. The program sets procedures for the termination and distribution of benefits from individual retirement plans, such as 401(k) plans, which are abandoned by their sponsoring companies.
The amendments, presented as interim final rules, are effective July 16, 2024, and can be used by Chapter 7 bankruptcy trustees on or after the date, the DOL wrote in a statement. The DOL is seeking additional comments on these amendments, through July 16, 2024.
The changes were necessary to facilitate distribution of retirement plan assets when sponsors abandon plans, reduce fees charged to participants’ accounts for annual reporting, legal compliance and other administrative services including termination costs, the DOL wrote.
“By opening the Abandoned Plan Program to Chapter 7 bankruptcy trustees, the interim final rules we announced today will improve the process for winding up retirement plans,” said EBSA head Lisa Gomez in a statement. “These changes will get promised retirement savings into the hands of workers and their families more quickly and efficiently and fulfill the commitment their employer made to its plan participants.”
EBSA’s amendment to the prohibited transaction class exemption, PTE 2006-06, permits Chapter 7 bankruptcy trustees and their designees to choose themselves and pay for services connected to terminating and winding up bankrupt companies’ retirement plans.
The DOL will consider a plan considered abandoned if:
- No contributions to or distributions from the plan have been made for a period of at least 12 consecutive months, and
- Following reasonable efforts to locate the plan sponsor, it is determined that the sponsor no longer exists, cannot be located or is unable to maintain the plan.
Without these regulatory updates, Chapter 7 bankruptcy trustees were ineligible to use the Abandoned Plan Program. With access to the program, trustees can now spend less time and resources to wind up a bankrupt company’s retirement plan, the DOL said.
The DOL regularly directs EBSA to investigate retirement plans abandoned by their sponsors. The DOL announced enforcement actions against two abandoned plans in 2022.
As part of the same notice, the DOL announced the availability of an online portal to submit required notices to the regulator.
“The online filing system will make it significantly easier to participate in the program and helps ensure that retirement plans accomplish their core mission of paying benefits to their participants and beneficiaries,” Gomez said in a statement.
In 2023, EBSA received 1,770 applications and closed 1,347 applications with terminations approved, a DOL factsheet shows. In total, $61.2 million was distributed directly to participants as a result of these terminations.
Representatives of the DOL referred additional questions on the program’s amendment to the DOL’s Abandoned Plans online fact sheet and FAQ.
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