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U.S. Department of Labor
Employee Benefits Security Administration
January 2002
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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.
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One such group of individuals is participants and beneficiaries of plans
whose sponsor has filed for bankruptcy.
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EBSA has been pursuing this type of bankruptcy case for a
number of years; however, we typically do not become aware of a bankruptcy
filing until we receive a participant complaint regarding the payment of
benefits. This notice often comes too late for EBSA to take any affirmative
action.
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In bankruptcy situations, it is common to find employers holding assets
which belong to or are owed to plans, occasionally intermingling those
assets with the employers’ own assets.
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Due to the tight time frames and the intricacies of the bankruptcy laws,
plan assets and employee benefits could be lost because of the plan
fiduciaries’ failure to timely identify plan contributions that have
not been paid to the plan’s trust.
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The new REACT initiative 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.
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Under REACT, when a company has declared bankruptcy EBSA
will take immediate action to ascertain whether there are plan contributions
which have not been paid to the plans’ trust, to advise all affected plans
of the bankruptcy filing, and provide assistance in filing proofs of claim
to protect the plans, the participants, and the beneficiaries.
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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.
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An example that best illustrates the types of assistance the Rapid ERISA
Action Team will deliver occurred in Chicago when a bank foreclosed on the
line of credit of a struggling manufacturer. In order to meet its debt
obligations, the employer used employee pension plan contributions.
EBSA promptly intervened and nearly $75,000 in delinquent employee
contributions were restored to the 401(k) plan.
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