DOL Amends Abandoned Plan Program Regulations

On May 17, 2024, the DOL published an interim final rule amending their Abandoned Plan Program regulations, which provide procedures for the termination of individual account retirement plans (such as 401(k) plans) that have been abandoned by their sponsoring employers. Among other items, the 2024 interim final rule makes the Abandoned Plan Program available to Chapter 7 bankruptcy trustees who administer a bankrupt company’s retirement plan.

Significant business events, including bankruptcies, can result in abandoned plans (i.e., plans without a responsible plan sponsor or administrator). In 2006, the DOL adopted the Abandoned Plan Program regulations to allow plan custodians, such as banks and insurers, to wind up an abandoned plan’s affairs and distribute plan benefits to participants and beneficiaries. Under the regulations, eligible custodians accepting such plan termination obligations are called Qualified Termination Administrators (QTAs). QTAs must notify the DOL before and after winding up an abandoned plan, locate and update plan records, calculate benefits payable, notify participants and beneficiaries, distribute benefits, and file a final Form 5500. Under Prohibited Transaction Exemption (PTE) 2006-06, QTAs are provided conditional relief from ERISA’s prohibited transaction rules for their services and related compensation.

However, the 2006 regulations did not extend the Abandoned Plan Program to Chapter 7 bankruptcy trustees who oversee and manage a bankrupt company’s plan. Under federal bankruptcy law, if a company in liquidation administered an individual account retirement plan, the company's Chapter 7 bankruptcy trustee must continue to perform plan administration functions.

The 2024 interim final rule and related amendment to PTE 2006-06 update the Abandoned Plan Program to allow a Chapter 7 bankruptcy trustee or an “eligible designee” to be a QTA and wind up the bankrupt company’s retirement plan. An eligible designee can be either a custodian QTA (as explained above) or an independent bankruptcy trustee practitioner meeting certain requirements. In addition to following the general Abandoned Plan Program procedures, the bankruptcy trustee must follow special rules to address any delinquent contributions owed to the plan. Additionally, the trustee is responsible for selecting and monitoring any eligible designee in accordance with ERISA’s fiduciary requirements and reporting to the DOL any suspected breaches involving plan assets by a prior plan fiduciary.

ERISA retirement plan sponsors should be mindful of their fiduciary obligations to a terminating retirement plan, including in situations in which the plan termination results from a significant business event or reorganization. These fiduciary obligations include updating the plan documents, notifying plan participants and beneficiaries, distributing plan assets, and filing a final Form 5500. In the event of the plan sponsor’s Chapter 7 bankruptcy, the DOL’s new amendments to the Abandoned Plan Program regulations and PTE 2006-06 will allow Chapter 7 bankruptcy trustees to effect the termination of an abandoned individual account retirement plan and distribute the benefits to participants and beneficiaries.

The 2024 interim final rule and amendment to PTE 2006-06 are effective July 16, 2024, so bankruptcy trustees can rely on this guidance on or after that date. The DOL is also seeking public comments on the amendments, which can be submitted through July 16, 2024.

Interim Final Rules »
Amendment to PTE 2006-06 »
Fact Sheet »