DOL Guidance on Abandoned Plans Lands at OMB

New regulatory guidance that would permit bankruptcy trustees to use the Department of Labor’s (DOL) Abandoned Plan Program has been submitted to the White House’s Office of Management and Budget (OMB) for review.

The new guidance, which was submitted to the agency on July 19, apparently will be issued as an interim final rule (RIN: 1210-AC04), meaning the guidance will essentially be in the form of a final rule and take effect, but there should be an opportunity for public comment.

While we don’t yet know what’s in the new guidance, a summary description of the proposal explains that the principal purpose is to permit bankruptcy trustees to use the Abandoned Plan Program to terminate and wind up the plans of sponsors in liquidation under Chapter 7 of the U.S. Bankruptcy Code.

The DOL’s Employee Benefits Security Administration (EBSA) has been trying to address this issue for the better part of the last decade. EBSA in December 2012 had proposed amendments to three regulations previously published under ERISA that facilitate the termination of, and distribution of benefits from, individual account pension plans that have been abandoned by their sponsoring employers. EBSA had also published a Notice of Proposed Amendment to PTE 2006-06 on the same date back in 2012.

The 2012 proposed rule and related class exemption sought to make it easier for trustees to distribute assets from bankrupt companies' retirement plans. EBSA’s intent was to make this streamlined process available to Chapter 7 bankruptcy trustees in order to reduce the time and resources required to wind up a bankrupt company's retirement plan.

Then in September 2019, the DOL had withdrawn this entry from the semiannual regulatory agenda due to agency reprioritization, but following a review of agency priorities, the entry was returned to EBSA’s regulatory agenda in the fall of 2021.

The Abandoned Plan Program, established in 2006, provides streamlined termination and distribution procedures for abandoned individual account plans, including 401(k) plans, under which benefits may be distributed in a manner that can substantially reduce fees charged to participants' accounts for, among other things, annual reporting, legal compliance and other administrative services, including termination costs.

Under amendments in 2005 to federal bankruptcy law, if a company in liquidation had an individual account retirement plan, the company's Chapter 7 bankruptcy trustee must perform those functions. The program also provides specific guidance on when a plan may be considered abandoned, who may make that determination, and exactly how to terminate the affairs of the plan and make benefit distributions. The program also limits the potential fiduciary liability of financial institutions that step in to terminate and wind up plans that have been abandoned by their sponsors.

The OMB generally has up to 90 days to vet the guidance and either approve it for release or send it back for modifications. Note that there is no minimum period for review.