Trust Updates Archive

Bankruptcy--ERISA
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Participants, Not Company, Must Pay Plan Expenses

(March 24, 2003, Chicago)--Plan participants, not Enron, must pay the costs of administering retirement plans, ruled a federal bankruptcy court on Friday, March 21. The ruling reverses a February 2002 agreement between the U.S. Department of Labor and Enron. The ruling, however, does not prohibit the plan's independent fiduciary from seeking recovery of plan expenses through the court.

After Enron's collapse, the U.S. Department of Labor negotiated an agreement with the company to appoint State Street Bank, Boston, to administer its three retirement plans. As part of that agreement, Enron agreed to pay the cost of administration--estimated at $4 million per year or some $320 per employee.

Enron's creditors strongly opposed the DOL agreement. On Friday, Judge Arthur Gonzalez of the U.S. Bankruptcy Court for the Southern District of New York, ruled in their favor. Though Gonzalez acknowledged that participants were damaged as a result of Enron's collapse, he found that as a matter of law the costs of plan administration were not part of Enron's estate.

"The court recognizes that plan participants may be disappointed and frustrated by the potential for an added financial burden," Gonzalez wrote in his 44-page ruling. "However, the record does not support that such disappointment and frustration standing alone demonstrate a basis for the exercise of sound business judgment."

Gonzalez added that "it was, and still is, the Court's view that the more appropriate procedure for deciding this issue is to require State Street, or any independent fiduciary for that matter, to file a motion seeking an administrative claim."

The DOL is still reviewing the ruling and declined comment.

-- Copyright Š2003 A.M. Publishing, Inc., Trust Regulatory News

No statement in this issue is offered as or
should be construed as legal opinion or advice.

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