Institute Testimony Includes Approaches for Dealing with Orphan PlansWashington, DC, July 22, 2002 - The Institute recently testified at a meeting of the ERISA Advisory Council's working group concerning "orphan plans," or retirements plans for which there is no longer an employer or other plan fiduciary to administer the plan or authorize distributions to participants. In its testimony, the Institute noted that the issues raised by orphan plans can cause significant legal and practical difficulties, and identified a number of specific issues. - Fund companies are not authorized to make distributions to orphan plan participants in the absence of direction from a plan fiduciary because fund companies do not act in a fiduciary capacity with respect to retirement plans;
- Fund companies often lack the necessary plan and participant information to even ascertain whether a distribution would be appropriate for a particular individual; and
- Orphan plans often have qualification and other regulatory defects because plan fiduciaries have been unavailable to maintain the plans.
In light of the legal and practical issues raised by these plans, the Institute suggested that the Department of Labor and the IRS jointly work towards developing a program that would offer two approaches to plan service providers.
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