Fact Sheet: Rapid ERISA Action Team For Bankruptcy

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May 2009

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 enables EBSA to respond 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.

An example that illustrates the types of assistance the Rapid ERISA Action Team delivers occurred in California when Glenn Cunningham, the owner of the Palm Springs Orthopedics Medical Clinic, failed to forward at least $4,000 in employee contributions to the Plan and withdrew at least $23,000 in plan assets for his personal use before the Clinic closed its doors. EBSA intervened and was able to obtain restitution of almost $34,000 for two former employees, as well as a permanent bar on Cunningham serving as a fiduciary to any other ERISA-covered plan.

Another example is a case involving a bankrupt New Jersey company, Standard Automotive Corp. The plan trustee used plan assets to pay his own law firm for legal services provided to the plan that were improper, unnecessary, and unreasonably costly. Through litigation, EBSA obtained restitution of $340,000 and the permanent bar of two individuals from serving as fiduciaries to ERISA-covered plans.

In another example, the Department obtained a settlement agreement filed in the U.S. Bankruptcy Court for the District Court of Massachusetts for the payment of nearly $115,000 in unpaid employee health claims of bankrupt Wolverine Proctor & Schwartz, LLC. The agreement requires the bankruptcy trustee to make restitution from the company’s bankruptcy estate to the health plan funds administered by Benefit Plan Management Inc. (BPM). BPM also currently holds two bank accounts containing assets of the health plans, which the Department previously took action to protect. BPM will use the $114,867 available from the bankruptcy settlement and plan accounts to pay in full the outstanding medical and dental claims of the former company employees. The former Merrimac, Massachusetts manufacturer had 119 participants in the plans when it entered voluntary Chapter 7 bankruptcy on April 1, 2006. The bankruptcy filing left 79 employees with significant unpaid health care costs. The plans provided medical and dental benefits to workers and family members.

In Fiscal Year 2008, EBSA achieved over $89.5 million in monetary results through this Project. The project achieved over $113 million in monetary results in FY 2009 through March 31, 2009.

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.