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March 10, 2005
New Rules Proposed for Abandoned 401(k) Plans

The U. S. Department of Labor has proposed rules to allow financial institutions to take responsibility for abandoned 401(k) plans and distribute the plans' assets to workers and their families.

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Each year, approximately 1,650 401(k) plans holding $868 million in assets and covering 33,000 workers are abandoned.

"Thousands of workers who have been denied access to their retirement benefits through no fault of their own will benefit from our proposed rules," said Assistant Secretary of Labor Ann L. Combs. "Our proposal will empower financial institutions that hold plans' assets to help participants gain access to their retirement benefits."

The department currently deals with abandoned plans on a case-by-case basis, often with the involvement of the courts. The proposed rules provide standards for determining when a plan is abandoned and establishes a process for winding up the affairs of the plan and distributing benefits to workers in the plan. When implemented, the process would eliminate the need for costlier court approvals and allow workers to regain access to their benefits sooner, according to the department.

The proposal also provides guidance on the application of tax qualification rules to plans terminated under this regulation. The recommendations of the department's ERISA (Employee Retirement Income Security Act) Advisory Council contributed to the development of the proposed rules.

The proposed regulations and exemption are published in the March 10, 2005 Federal Register.

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