Significant business events, such as bankruptcies, mergers, acquisitions and business closures often result in employers - particularly small employers - abandoning their retirement plans (e.g., 401(k) plans). Financial service providers such as custodians, banks, insurers, mutual fund companies, and the like are left holding abandoned plan assets without the authority to terminate plans or distribute benefits. The Department of Labor (DOL) Abandoned Plan Program provides a set of rules in response to the growing number of “orphaned” defined contribution plans.
THE DOL ABANDONED PLAN PROGRAM
The DOL Employee Benefits Security Administration (EBSA) developed rules to provide for a voluntary, safe and efficient process for winding up the affairs of abandoned individual account plans and the distribution of benefits. A plan generally will be 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/administrator it is determined that the sponsor no longer exists, cannot be located or is “unable to maintain the plan”.
THE IMPORTANCE OF THE QTA
The DOL dictates that the Qualified Termination Administrator (QTA) have custody of the assets and be eligible to serve as a trustee or issuer of an individual retirement plan under the Internal Revenue Code. As a leader in the Automatic Rollover market, Millennium Trust is uniquely qualified to recommend a QTA for abandoned plans and provide a rollover IRA at plan termination. Accustomed to large account conversions, Millennium customizes its solutions to meet specific requirements of the financial service provider.
TERMINATION AND WINDING-UP PROCESS
Terminating Plans must follow the required steps laid out in Department of Labor FAB 2014-01 before finalizing their termination and "winding up activities", including:
- Locating and updating plan records
- Retaining TPAs, attorneys and accountants and paying those expenses
- Calculating and distributing participant and beneficiary benefits
- Filing a summary special terminal report
ROLLOVER OF ACCOUNTS
The regulations establish a fiduciary safe harbor for distributions from terminating plans. At the end of extensive search and the notification processes, Millennium rolls plan accounts to participants and into IRAs for the remaining missing and non-responsive participants.