According to, more than 35,000 businesses filed Chapter 7 bankruptcy in the year ended Sept. 30, 2011. On top of that, there are always numerous unresolved cases pending.

Each bankruptcy case is assigned a panel trustee through the U.S. Trustee Program, whose job is to bring the case to a close. Most often these trustees are attorneys or CPAs who have developed a bankruptcy-related practice and have special training to be qualified for these appointments.

One of a trustee's additional tasks is to close down any retirement plan that a company filing for bankruptcy might have had and return the retirement funds to plan participants.

The retirement plan assets of a company filing for Chapter 7 bankruptcy have been protected from creditors since the passage of the Employee Retirement Income Security Act in 1974. Thirty years later, in 2005, trustees were actually made responsible for administering the plans of bankrupt companies, being accountable for their assets and making an effort to return them to the companies' ex-employee participants.

CPAs who are qualified to serve as trustees are assumed to be familiar with the bankruptcy and income tax issues associated with bankruptcy cases, but not necessarily with the process required to close out a qualified retirement plan. But they do have the option of seeking assistance from outside service providers that possess the Department of Labor and ERISA experience usually needed for this task. This is fortunate because the laws set forth a strict set of performance standards in this area, and it is the trustees' responsibility to be sure their own efforts and those of the firms they retain always focus on the best interest of participants or their beneficiaries. Their actions are subject to review by the Department of Labor, which ultimately has the authority to impose fines on any trustee it believes has violated their fiduciary duty.

While retaining highly qualified service providers may be the best way for trustees to meet their responsibilities, they are still responsible for a provider's performance, and should have a fundamental understanding of the plan termination process and knowledge on how to evaluate potential providers.



Trustees should realize that plan termination can be initiated at the outset of bankruptcy proceedings and take place simultaneously with the other steps in the process. This may be especially helpful when they discover that throughout the plan termination process they can expect to be contacted directly and regularly by plan participants who are seeking their money. Being able to demonstrate control of and progress on the termination process may reduce these participants' frustration and cause them to have more patience.

The starting point is to learn if the company has already taken formal steps to terminate the plan. If not, the trustee must take the prescribed action to do so.

Since trustees are responsible for protecting all plan assets, taking inventory of the assets is essential. This includes all invested funds, as well as funds represented by checks that may have been previously sent to participants and never cashed or checks that were sent out and later returned for some reason. The latter two circumstances may represent a great deal of money that is still considered an asset of the plan.

Next, there should be a thorough review of the plan documents and administrative history to determine if the plan had been administered in compliance with all regulations. This compliance (or lack of it) -- will influence how quickly and easily it can be terminated.

The plan termination process consists of multiple steps, including the confirmation that the plan meets all relevant Internal Revenue Service rules, and taking the appropriate steps if it does not. It must also be determined if it is in compliance with all ERISA mandates, is current in its filing of Form 5500, and whether all participants have been appropriately vested.



It is important early on to address the often-complicated issue of missing or non-responsive participants. Until that is done, the termination cannot be completed.

Many participants leave a company when it announces plans to file bankruptcy. Others are let go through earlier layoffs implemented in an attempt to avoid bankruptcy. When the bankruptcy is filed, the remaining participants are terminated. As time goes on, many of these individuals move, perhaps to seek new employment, and leave no forwarding address. Others who can be located may still fail to respond to any communications about the plan.

Trustees must make a determined effort to notify all plan participants about the pending termination and instruct them on how to receive their benefit payments. They must be provided with the required distribution forms and tax notices.

This is relatively simple for participants whose contact information is available. It's not so simple for the missing and non-responsive individuals. In these cases, the DOL requires the trustee to take specific steps in an effort to find them. Using certified mail, checking other plan records, making contact with designated beneficiaries and using IRS or Social Security Administration letter-forwarding services are required. Internet search tools, commercial locator services and credit reporting services are also recommended.

Only if these efforts fail can trustees roll the balances of these participants' accounts into IRAs in their names by transferring them to a qualified IRA custodian.

This may be an instance where trustees will benefit from retaining a custodian that can undertake the entire process, beginning with the search for missing participants and contacting those in the non-responsive category. These firms can help the trustee transfer the assets in these plans to individual IRAs opened in their names and continue trying to locate them and re-unite them with their retirement funds. Trustees have numerous sources through which to identify custodial firms for these assignments. Pension, employee benefit or retirement associations may be able to help by providing referrals.

Terry Dunne, CPA/PFS, CFP, is managing director of automatic rollovers at Millennium Trust Co. LLC, in Oak Brook, Ill., which works with record-keepers and third-party administrators to provide automatic rollover services to plan sponsor clients.

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