DOL Rule on Abandoned Retirement Plans Arrives at OMB

Big Problems

While at EBSA, Borzi said Labor was attempting to address "two big problems" in this area.

First, "financial institutions that were custodians of the funds were more than happy to let the plan assets sit and dutifully claim their administrative fees until the assets ran out," Borzi said. "They often claimed that they had no authority to terminate the plan and the procedure under EBSA's abandoned plan program either didn't authorize or require them to terminate the plan."

As to employer bankruptcy, "the Bankruptcy Code required the bankruptcy court to appoint a trustee as plan administrator," Borzi explained.

"In those cases, the courts allowed the appointed trustees to determine what they would charge for their services (although the court was supposed to approve the request, the staff learned from advocates for plan participants and others familiar with the situation that courts rarely challenged the requested fee and routinely approved the bills as presented, even if the trustee sat on its hands for months while continuing to claim fees."

Borzi continued: "Because they typically were lawyers, they charged very high hourly rates for virtually no actual services. To the extent that the administrative services [were] necessary to terminate and close out the plan, they were generally performed by lower level admin folks in the law firm, while charging fees as if the senior partner was filling out and filing the necessary forms."

Once again, Borzi added, "the assets of the abandoned plan could easily be siphoned off with little or nothing left for the participants. The bankruptcy bar didn't want to use the Department's abandoned plan program because fees were in essence capped (I think the regs said the trustee can only charge reasonable fees based on the services provided). It was pretty easy to fix the first problem but as much as we tried to accommodate the concerns of the bankruptcy bar, their vehement objection to any limitation to what they could charge created internal Administration problems with the DOJ's bankruptcy folks over whom these lawyers apparently had influence."

During her time at EBSA, Borzi said, "there were also a lot of relatively minor uncontroversial changes that we planned to propose."

Towards the end of the Obama administration, EBSA "had to move this project down the regulatory agenda because there were other reg projects that were higher priorities of the Secretary and the Administration that we had to complete," Borzi relayed. "Since the career folks had spent years trying to seek a compromise and prospects didn't seem very good for a quick resolution, it seemed the wise choice at the time."

That being said, "the problems are real and I am really glad that EBSA was finally able to propose something," Borzi added. "I look forward to seeing what is in the proposal."