Mergers, acquisitions and business closures often result in the termination or abandonment of employer retirement plans. Custodians are left holding assets without the authority to terminate plans or distribute benefits of so-called ‘orphaned plans.’ In response, the Employee Benefits Security Administration (EBSA) has established rules to provide for winding up the affairs of abandoned retirement accounts and the distribution of benefits.
A plan is considered abandoned if no contributions to, or distributions from, have been made for a period of at least twelve consecutive months; and efforts to locate the plan sponsor have been unsuccessful because the entity no longer exists, cannot be located or is unable to maintain the plan. EBSA regulations provide for the appointment of a QTA – Qualified Termination Administrator – to take custody of the dormant assets. The QTA is an eligible IRA custodian: bank, trust company, broker dealer or insurance company.
These rules – establishing Rollover IRAs for terminating and abandoned defined contribution plans, and for missing and non-responsive defined contribution plan participants, may cause retirement funds to lose their ERISA-qualified status, subjecting them to state escheat statutes when they go unclaimed.
A Notice of ‘Intent to Terminate Plan’ is sent to the last known address of the plan administrator. The plan administrator has 30 days to appeal the termination. The QTA then files a ‘Notification of Plan Abandonment’ and ‘Intent to Serve as Qualified Termination Administrator’ with the Department of Labor, which becomes effective in 90 days if no objection is made.
A search is made for all plan participants, who are sent a ‘Notice of Plan Termination’ and given instructions on how to reclaim their funds. If owner reunification efforts prove unsuccessful, plan accounts may be transferred to a Rollover IRA.