Rapid ERISA Action Team For Bankruptcy
U.S. Department of Labor
Employee Benefits Security Administration
In carrying out its responsibility to protect participants and beneficiaries' benefits, EBSA has targeted populations of plan participants who are potentially exposed to the greatest risk of loss.
One such group of individuals is participants and beneficiaries of plans whose sponsor has filed for bankruptcy or is in financial peril. In bankruptcy situations, it is common to find employers holding assets that belong to or are owed to plans and occasionally intermingling those assets with the employers' own assets. Unless those assets are identified in a timely manner during bankruptcy proceedings and the appropriate action is taken, employees could permanently lose their right to their unpaid employee contributions.
The REACT project focuses EBSA's response in an expedited manner to protect the rights and benefits of plan participants when the plan sponsor faces severe financial hardship or bankruptcy and the assets of the employee benefit plan are in jeopardy.
Under REACT, when a company has declared bankruptcy EBSA takes immediate action to ascertain whether there are plan contributions that have not been paid to the plans' trusts, to advise all affected parties of the bankruptcy filing, to provide assistance in filing proofs of claim to protect the plans, the participants, and the beneficiaries, and if necessary, to seek the appointment of an independent fiduciary to distribute plan assets to participants and beneficiaries.
EBSA also attempts to identify the assets of the responsible fiduciaries and evaluate whether a lawsuit should be filed against those fiduciaries to ensure that the plans are made whole and the benefits secured.
The Department obtained a court order that more than $1 million in plan assets be distributed to participants and beneficiaries of the BlueSky Brands, Inc. 401(k) plan. The January 11, 2011 order also appoints an independent fiduciary to administer the 401(k) plan of the defunct Westerly, Rhode Island company. The independent fiduciary will manage the plan, make the distributions and complete the plan termination process. The Judgment and Order were entered in the U.S. District Court for the District of Rhode Island.
A REACT project investigation of the now defunct Sacramento, California AC General Engineering, Inc. resulted in the restoration of $46,869 to plan participants. The funds represent nearly two years of 401(k) plan contributions deducted from employees’ paychecks that were not forwarded to the plan. The contributions are being restored pursuant to a consent judgment issued by the U.S. District Court for the Eastern District of California. The Department obtained the district court judgment after the U.S. Bankruptcy Court for the Eastern District of California granted the Department’s request for a stipulated judgment against one of the company’s owners. Former owner and officer Christopher Barringer personally filed chapter 7 bankruptcy and attempted to discharge the debt owed to the plan. The bankruptcy court judgment declared Barringer’s debt to the plan as non-dischargeable.
In another example, the Department filed suit in the U.S. District Court for the Southern District of Indiana seeking to recover more than $256,000 plus interest for participants and beneficiaries of the Heartland Foods 401(k) Profit Sharing Plan. The suit alleges that the owners, Karen S. Curry and Danny Woods, commingled employee contributions with the financially distressed company's operating accounts. The Department's suit also alleges that Curry and Woods exceeded the plan's allowable distribution amount in making over $21,000 in distributions to Woods and another participant. The suit seeks restoration of plan losses, lost interest, and disgorgement of any profit from the prohibited transactions. The Department is also pursuing the permanent disbarment of Woods and Curry as ERISA plan fiduciaries.
The Department obtained a judgment requiring Harry Fishleigh III to restore more than $114,000 to the North Coast Products, Inc. Profit Sharing Plan. Fishleigh was president and part owner of the defunct Ohio company. The judgment entered in the U.S. District Court for the Northern District of Ohio also orders Fishleigh to pay nearly $3,000 in costs for an independent fiduciary to oversee distributions and complete the plan termination.
In Fiscal Year 2012 through March 31, 2012, EBSA achieved over $80.2 million in monetary results through this project.
This fact sheet has been developed by the U.S. Department of Labor, Employee Benefits Security Administration, Washington, DC 20210. It will be made available in alternate formats upon request: Voice phone: 202-693-8664; Text telephone: 202-501-3911. In addition, the information in this fact sheet constitutes a small entity compliance guide for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.