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DOL Revises Abandoned Plan Program, Extends Program Eligibility to Chapter 7 Bankruptcy Trustees


· 5 minute read


· 5 minute read

Interim Final Rule: Abandoned Plan Regulations, 29 CFR Parts 2520, 2550, and 2578, 89 Fed. Reg. 43636 (May 17, 2024); Amendment to Prohibited Transaction Exemption 2006-06 (PTE 2006 -06), 89 Fed. Reg. 43675 (May 17, 2024); DOL Fact Sheet: Abandoned Individual Account Plan Regulations and Class Exemption (May 2024); DOL News Release 24-934-NAT (May 16, 2024) 

Interim Final Regulations 

Amendment to Prohibited Transaction Exemption 

Fact Sheet 

News Release

More than a decade after proposing amendments to regulations on abandoned plans (see our article), the DOL has issued interim final regulations that, among other things, allow bankruptcy trustees to use the DOL’s Abandoned Plan Program to terminate and wind up the plans of sponsors in Chapter 7 bankruptcy. As background, the abandoned plan regulations set forth how a qualified entity that holds a plan’s assets (known as a “qualified termination administrator” or QTA) may determine that the plan has been abandoned, notify the DOL, and terminate and wind up the plan’s affairs (see our article). The DOL has also amended a related class prohibited transaction exemption (PTE 2006-06) to allow a QTA that is a bankruptcy trustee (or its eligible designee) to select and pay itself to provide services and investment products in connection with an abandoned plan’s termination.

Here are highlights of the regulations for bankruptcy trustee QTAs:

  • A bankruptcy trustee may appoint an independent bankruptcy trustee practitioner as an eligible designee QTA. (Under the proposal, only a plan asset custodian could be an eligible designee.) The practitioner must have served as a bankruptcy trustee in a Chapter 7 case within the last five years, must acknowledge its ERISA fiduciary status, and must accept its designation in writing.
  • When winding up a bankrupt plan’s affairs, a QTA that is owed more than a de minimis amount of combined employee and employer contributions must take reasonable steps to collect delinquent contributions on the plan’s behalf, considering the value of the plan assets involved, the likelihood of a successful recovery, and reasonably incurred expenses. To avoid conflicts of interest between the trustee’s duties to the bankruptcy estate and to the plan, the trustee must appoint an eligible designee when there is an obligation to collect delinquent contributions. De minimis for this purpose means not more than $2,000 in delinquent contributions, or if collectable property in the bankruptcy case is not more than $2,000.
  • The QTA must notify the DOL of any activities that it believes may be evidence of fiduciary breaches by a prior plan fiduciary (e.g., the debtor).

The regulations also include alterations to the Abandoned Plan Program rules applicable to all QTAs (i.e., not just bankruptcy trustee QTAs). These include:

  • The regulations limit use of the special rule permitting a transfer of a deceased participant’s account balance to a bank account or state unclaimed property fund in the participant’s name, even if the balance surpasses $1,000, in certain situations that could lead to abuse. For example, a QTA that is unable to locate a beneficiary in plan records must first conduct a reasonable search for the participant’s beneficiary designation form consistent with ERISA’s fiduciary duties, and must document the findings in the final notice sent to the DOL.
  • Substantive changes have been made to the special terminal report for abandoned plans, including (1) turning it into a single, stand-alone form with a penalties and perjury statement requirement; (2) allowing it to be filed online; and (3) eliminating the requirement to report plan administrator identification information, whether the plan is collectively bargained, and the plan’s effective date.

The regulations and PTE amendment are effective July 16, 2024. No reliance is permitted before that date.

EBIA Comment: Allowing Chapter 7 bankruptcy trustees to use the Abandoned Plan Program gives them a clearer path for terminating and making distributions from bankrupt entities’ 401(k) plans and potentially reduces the erosion of participant accounts by administrative fees. In addition, bankruptcy trustee QTAs and eligible designees that adhere to the regulations generally will be deemed to comply with ERISA’s duty of prudence with respect to the plan’s winding-up. Model notices are provided to assist QTAs in carrying out their duties. The DOL is not done with the Abandoned Plan Program, however, as it has requested additional comments through July 16, 2024, and indicated that more changes may be made (including possibly extending the program to cover plans of entities in Chapter 11 bankruptcy or receivership under the FDIC or other applicable federal or state law). For more information, see EBIA’s 401(k) Plans manual at Sections XXXIII.K.4 (“Abandoned Plans”) and XXIV.M.2.e (“PTE 2006-06: Class Exemption for Abandoned Plans”).


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