Rapid Increase in Bankruptcies to Result in More Abandoned Retirement Plans

The rapid increase in bankruptcies in the U.S. could result in more abandoned retirement plans, which occurs when a company goes out of business and assets in a defined contribution plan are left at a custodian or mutual fund company that is not authorized to distribute the monies.

In the first quarter of this year, bankruptcies rose 64% to 14,319 from 8,713 bankruptcies in the first quarter of 2008.

“We currently have seen record numbers of business bankruptcies,” said Peter E. Prevovolos, president and CEO of PenChecks. “Not all plans are wound down properly due to a variety of factors. This can result in an increase in orphaned plans. From our experience, the average terminated plan, which in many cases is the result of business bankruptcy, had $105,000 in plan assets and eight employee participants with an average balance of $13,215 each.”

PenChecks offers a system for custodians of such plans that puts them in touch with a qualified termination administrator to determine the best automated solution to wind down the 401(k) or other plan and reduce their fiduciary liabilities.

“In this tough economy, we should do everything we can to get working Americans access to their hard-earned retirement assets,” Preovolos said.

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401(k) Money Management Executive
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