| 89-4 |
| July 26, 1989 |
| REFERENCE: |
| 4044 Allocation of AssetsAllocation of Assets |
| 4044(d) Allocation of Assets. Distribution of Residual AssetsAllocation of Assets. Distribution of Residual Assets |
| 29 CFR 2617 Determination of Plan Sufficiency & Termination of Sufficient PlansDetermination of Plan Sufficiency & |
| Termination of Sufficient Plans |
| >29 CFR 2617.4> |
| OPINION: |
| We have reviewed the Trustee's Motion to Compromise Claim and the appended Mutual Release and Settlement |
| Agreement filed June 20, 1989, in the bankruptcy of ***, concerning the *** Salaried and Hourly Pension Plans (hereinafter |
| the "Plans"). In response and in lieu of filing a formal objection, we suggest several modifications to the Motion to reflect |
| the following concerns. |
| The Plans must satisfy all liabilities to participants and beneficiaries under the terms of the Plans. |
| Section 4044(a) of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1344(a), requires that, |
| upon termination of a single employer plan, the plan administrator must allocate plan assets in accordance with a six-tier |
| allocation scheme. See Mead Corp. v. Tilley, No. 87-1868, slip op. at 2 (U.S. June 5, 1989). Section 4044(d) provides, |
| inter alia: Any residual assets of a single employer plan may be distributed to the employer if . . . all liabilities of the plan |
| to participants and their beneficiaries have been satisfied . . . |
| *** received Notices of Sufficiency regarding the Plans on November 20, 1985, and was thereby directed to distribute plan |
| assets in accordance with the section 4044 allocation scheme. Therefore, the Motion should clarify that the Plans must |
| satisfy all liabilities to participants and beneficiaries under the terms of the Plans, not just guaranteed benefits. |
| Satisfaction of anything less denies *** the right to a reversion of residual assets. |
| To satisfy the liability to a missing participant or beneficiary, the plan administrator must purchase an annuity or, in the |
| case of a de minimis benefit, place the benefit in a separate account in the participant's name. |
| The PBGC recognizes that frequently all participants cannot be located at the time of distribution of plan assets upon plan |
| termination. Two opinion letters address the issue of distributing plan assets to "lost" participants. PBGC Opinion Letter |
| No. 83-24, issued October 17, 1983, concludes that a plan administrator has a fiduciary duty to take reasonable steps to |
| locate all participants. When a participant cannot be found, his entitlement must be satisfied through the purchase of an |
| annuity unless an exception described in 29 C.F.R. § 2617.4 applies. If the participant's monthly benefit is less than the |
| smallest monthly benefit amount normally provided by an insurer, or the present value of the benefit, determined under |
| applicable PBGC regulations, is $ 1,750 or less, the benefits of those participants may be deposited into a special bank |
| account. Thus, Opinion Letter No. 83-24 indicates that all such benefits may be placed in one pooled account. Id., citing |
| Subsequently, the Department of Labor issued an opinion letter on August 25, 1986, which arrives at a conclusion similar |
| to that of the PBGC above. The Opinion also states: |
| We note, however, that a [fiduciary] violation . . . would not occur merely because the trustees of a plan, after following |
| the appropriate plan procedures for locating "lost" participants and otherwise fulfilling their responsibilities as outlined in |
| section 404(a)(1) of ERISA, distribute the benefits to which a "lost" participant is entitled into an interest-bearing federally- |
| insured bank account opened in the participant's name if such manner of distribution is permitted under the terms of the |
| plan and if the participant has an unconditional right to withdraw funds from the account. |
| DOL Opinion Letter No. 11-86 (emphasis added). |
| The PBGC agrees that it is the better view for the de minimis unclaimed benefit to be placed in a separate bank account |
| opened in the missing participant's name. A separate account in the individual's name is preferred to a pooled account |
| because of the possibility that the Internal Revenue Service procedures will result in a "lost" participant's learning of the |
| existence of his account. At present, the IRS attempts to match each Form 1099 filed by a financial institution showing |
| interest earned by a specific account to the account-holder's income tax return. An imbalance automatically generates a |
| letter that is sent to the filer. Thus, a missing participant who filed an income tax return would receive such a letter and |
| thereby learn of the account containing his benefit. |
| Therefore, to ensure that the Plans' liability to each participant is satisfied, we believe that, rather than pooling all de |
| minimis lump sum benefits in one account, each unclaimed benefit entitlement, other than those required to be distributed |
| in annuity form, should be distributed through placement in a separate account in the participant's name. |
| If you have any questions, please contact the staff attorney assigned to this matter, Susan Decker, at (202) 778-8886. |
|
Carol Connor Flowe, General Counsel |
|
You have asked whether the administrator of a terminated pension plan, pursuant to a distribution of the plan's assets, |
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may create a special bank account to hold the benefit entitlements of those participants whom it is unable to contact. We |
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have concluded that, subject to the conditions below and the requirements of other applicable law, the creation of such an |
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account and the payment of lump sum entitlements into it may be consisted with a distribution of assets under Title IV of |
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the Employee Retirement Income Security Act of 1974 ("ERISA"). |
|
The Pension Benefit Guaranty Corporation (the "PBGC") has published a Regulation Determination of Plan Sufficiency and |
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Termination of Sufficient Plans, 29 C.F.R. Part 2617 (the "Regulation"), which covers the procedure to be followed by a |
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plan administrator that distributes the assets of a terminated sufficient plan. |
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Section 2617.21 of the Regulation provides that |
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"[w]ithin 90 days after the date of the Notice of Sufficiency, the plan administrator shall allocate and distribute plan assets |
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in accordance with [the PBGC's Regulation Allocation of Assets in Non-Multiemployer Plans, 29 C.F.R. Part 2618] by - |
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(a) Purchasing from an insurer contracts to provide benefits required by § 2617.4(a) [of the Regulation] to be provided in |
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annuity form; |
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(b) . . ., and |
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(c) Providing all benefits that are not required by § 2617.4 to be provided in annuity form. |
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Section 2617.4 of the Regulation requires that participant entitlements under a terminated plan must be paid in annuity |
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form unless either 1) the monthly benefit is less than the smallest monthly benefit amount normally provided by an |
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insurer; 2) the present value of the benefit, determined under applicable PBGC regulations, is $ 1,750 or less; or 3) the plan |
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provides for an alternative form of distribution, and the plan administrator submits a written statement to the PBGC |
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certifying that, inter alia, the participant elected, in writing, the alternative form of distribution. In a situation such as the |
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one you describe, where the plan administrator is unable to contact a participant to obtain such an election, the third |
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exception does not apply, and thus the participant's entitlement may be paid in a form other than an annuity only if it is |
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small enough so that one of the first two exceptions is applicable. |
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You have stated that you have been unable to contact approximately * * * participants for the purpose of making |
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appropriate distributions to them. You have asked whether, in these circumstances, the creation of a special bank account |
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and the payment into it of all benefits payable as lump sums would comply with § 2617.21(c) of the Regulation. We |
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have concluded that § 2617.21(c) does not prohibit distribution in such a manner. Our conclusion is based in part on our |
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understanding that all reasonable efforts to notify participants and beneficiaries of their rights to lump sum payments have |
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been made, that the plan administrator will cooperate with the efforts of any participant or beneficiary who seeks to |
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recover an entitlement after distribution into the special account, that the account will remain in existence for at least the |
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period required by law for trust accounts containing amounts due beneficiaries who cannot be located, and that the |
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expenses and earnings of the special account are to be allocated in a manner consistent with applicable law. |
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Accordingly, when all lump sum payments to the special account have been made and all other assets of the plan have |
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been distributed in accordance with the Regulation, the plan administrator may submit the appropriate distribution |
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information to the PBGC in accordance with § 2617.23 of the Regulation. Furthermore, the continued existence of the |
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special account will not by itself necessitate the continued payment of premiums to the PBGC under 29 U.S.C. § 1307. |
|
I trust this responds to your inquiry. Please direct any further questions you may have to * * * of my staff at (202) 254- |
|
Henry Rose, General Counsel |
|
William M. Straus, Esq. |
|
Lang, Straus, Xifaras & Bullard |
|
81 Hawthorn Street |
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New Bedford, MA 02740 |
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Re: Seafood Workers Pension Trust Identification No. F-2870A |
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This is in response to your request for an advisory opinion concerning the application of the Employee Retirement Income |
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Security Act of 1974 (ERISA) to the disposition of unclaimed moneys payable to participants of the Seafood Workers |
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Pension Trust (the "Trust") who cannot be located. |
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You represent that the Trust is a multiemployer pension plan which is in the process of being terminated by its trustees |
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(the "Trustees") in accordance with the provisions of ERISA. Notices have been sent out to the approximately 770 |
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individuals who were found to be eligible for payment out of the trust corpus of approximately $ 2,270,000. As of |
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December 24, 1985, 22 individuals, representing estimated payments of $ 10,000, have not responded to the mailed |
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notices which were sent to them. The Trustees plan to take additional steps to try and locate the missing participants, |
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including the use of newspaper advertisements and mailings to the last known addresses supplied by the Social Security |
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You ask the following questions: |
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1. Whether the Trustees must take additional steps to contact participants beyond advertisement and a mailing to the last |
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known address supplied by the Social Security Administration. |
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2. Whether the Trustees must hold in trust remaining assets of unaccounted-for participants for a period of time, and if so |
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for what period of time, and what would be the applicable reporting requirements. 3. Whether, if the answer to #2 is |
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negative, there is a procedure for transferring unclaimed sums to the Pension Benefit Guaranty Corporation (PBGC) to |
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hold for the benefit of the unaccounted-for individuals, thereby permitting the Trust to make a final termination. |
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4. Whether the Trustees should be guided by state law on the termination of trusts and/or unclaimed property where there |
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is no applicable Federal law. |
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Section 5 of ERISA Procedure 76-1 (41 FR 36281, August 27, 1976) provides that advisory opinions ordinarily will not be |
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issued regarding problems of an inherently factual nature or on the form or effect in operation of a plan or particular |
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provisions thereof. Therefore, the following discussion is intended to provide general guidance with respect to various legal |
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issues raised by your questions and should not be construed as an endorsement by the Department of any particular |
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procedure for locating "lost" plan participants or disposing of unclaimed moneys. |
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Section 404(a)(1)(A) of ERISA provides, in relevant part, that a fiduciary shall discharge his duties with respect to a plan |
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solely in the interest of the participants and beneficiaries, and for the exclusive purpose of providing benefits to |
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participants and their beneficiaries. In addition, section 404(a)(1)(B) of ERISA requires that a fiduciary discharge his duties |
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with the care, skill, prudence and diligence that a prudent man acting in a like capacity and familiar with such matters |
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would use in the conduct of an enterprise of a like character and like aims. Section 404(a)(1)(D) of ERISA provides that |
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fiduciaries must discharge their duties in accordance with the documents and instruments governing the plan insofar as |
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such documents or instruments are consistent with the provisions of Titles I and IV of ERISA. In this connection, section |
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402(b)(4) provides, among other things, that every employee benefit plan shall specify the basis on which payments are |
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made to and from the plan. In the case of terminating plans, plan fiduciaries must also ensure that procedures regarding |
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"lost" participants are consistent with the applicable allocation provisions referred to in section 403(d) of ERISA. |
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Section 403(a) of ERISA provides that, subject to certain exceptions established in section 403(b), all assets of an |
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employee benefit plan shall be held in trust by one or more trustees. |
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Issue 1 The fiduciary responsibility provisions of Title I of ERISA do not specifically address the question of what steps |
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fiduciaries of a plan must take in order to locate "lost" participants. In the Department's view, this question is inherently |
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factual in nature and must be resolved by the appropriate plan fiduciaries, applying ERISA's general fiduciary |
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responsibility provisions to each plan's particular facts and circumstances. Accordingly, the Trustees must themselves |
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determine whether the procedure you describe for locating "lost" participants would satisfy their fiduciary obligations under |
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Title I of ERISA. However, in the Department's view, such a determination would generally not satisfy ERISA's fiduciary |
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responsibility provisions where a plan's "lost" participant procedures did not include, among other things, a requirement for |
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utilizing the services of the Social Security Administration to attempt to ascertain the current mailing address of "lost" |
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Issue 2 |
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Neither sections 403(a) and (b) nor the regulations issued thereunder (29 CFR 2550.403a-1 and 2550.403b-1) contain an |
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exemption from ERISA's trust requirements with respect to pension plan funds held for participants who cannot be located. |
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We note, however, that a violation of section 403(a) would not occur merely because the trustees of a plan, after |
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following the appropriate plan procedures for locating "lost" participants and otherwise fulfilling their responsibilities as |
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outlined in section 404(a)(1) of ERISA, distribute the benefits to which a "lost" participant is entitled into an interest-bearing |
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federally-insured bank account opened in the participant's name if such manner of distribution is permitted under the terms |
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of the plan and if the participant has an unconditional right to withdraw funds from the account. To the extent that the |
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transfer into a bank account constitutes a distribution of the benefits to which the participant is entitled, the assets of the |
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bank account would not be subject to the trust requirements in section 403(a) of ERISA. |
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Issue 3 |
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The Department is unaware of any procedures for transferring unclaimed sums to the PBGC in connection with a plan |
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termination. To the extent this question raises issues under Title IV of ERISA, you may wish to direct your inquiry to the |
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PBGC, which has jurisdiction for issuing rulings and interpretations under Title IV. |
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Issue 4 |