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ESOP distributions deferred at LAST MINUTE


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I'm a former employee of a company that offers ESOP as a benefit.  I was laid off in September of 2010 and was told that the company will hold the money for  60 month period.  When i contacted the company in 2015 I was told that I had to wait until the 5th plan valuation after separation, or 2016.  In 2016 I was sent information on elected a lump sum distribution.  I contacted the company and was told that  wold need to make the election between July 1 and September 30, 2016.  They payment would then be made no later than the end of the year (by December 31, 2016).  I elected my lump sum distribution on July 8, 2016.  On November 18, 2016 I contacted the financial company that would process the distribution.  I was told that the payment would be processed no later than December 31, 2016.  I checked again on December 29, 2016 and on December 30, 2016 that financial company again said that, per plan policy, payments would be processed by December 30, 2016.  On December 31, 2016 I received a letter from the company that was dated December 30, 2016. The letter stated that because sales were not as anticipated and industry competition was stronger than anticipated,  changes to the ESOP plan have to be made.  It explains payments to former employees will be deferred.  It does not say for how long.  Also, the letter says lump sum payments will no longer be made and payments will be made over 5 annual installments once participants become eligible for distributions.  I have not received a summary plan description since 2005 (I no longer even know where it is).  I stopped by the company to view the SPD and was told that the person who has access was gone for the day, so I will be back today to pick up copies. I am wondering if this type of last minute notice is sufficient.  Also, I am already eligible for distribution, so shouldn't I at least be getting one of those five annual installments?  I am not sure how I can make this company pay me my money. The attorney I contacted said if the account is not worth at least $100,000 it is not worth it to litigate. I know $27,000 is not a lot of money to most, but it will make a world of difference to my family.  The letter is attached, and it does not offer much information.  I would just like to know when I can expect to get paid.

letter - former employee.jpg

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It appears that the plan sponsor company has financial difficulties that are serious enough to make some desperate moves, and then some.  You are probably entitled at least to an installment,  but the company feels like it cannot pay without jeopardiing the business.  This is a dilemma. If you press for payment, the company could slip into bankruptcy and you would get nothing, ever. But that could happen whether or not you press.

You could go to the Department of Labor for assistance.  The DOL is interested in ESOPs that do not pay on time, but the DOL has no solution to the dilemma of financial crisis and can just as well sink the   ship by intervening.

If I knew that the company were acting in desperate good faith, I would sit tight and hope against hope that the fortunes turn and eventually something is paid.  But there is no way to adequately assess if the company is doing the best it can.

 

 

 

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Is it possible what they did is legal?  Maybe.  It would depend on the facts.  The facts would have to be rather narrow.  I am thinking it might be possible if there is an ESOP loan to amend the plan to delay until the loan is paid off.  But normally you would see that be prospective not retroactive.  It would be nice if they were more transparent.

I am one of the people on this board that tells people to go to the DOL only after all other attempts to get a resolution have been made.  The DOL can be a rather blunt instrument and they can cause a struggling company more problems then it is worth.  It can cost $10,000s in legal fees to defend  yourself from the DOL and if this company is struggling that is just less money to fund your benefit payment.

I would see if you can get an appointment with someone who is willing to tell you on what basis they think they can delay. 

Remember it is a lot of money and I am not trying to minimize your feeling that way but the goal is to get your money not punish the company.  Every now and then people get on this board looking for advice and they have reached the mad point and they seem more interested in emotional satisfaction then getting their money. 

So try and talk to them and see if you can get an idea what conditions have to be true for the delay to be lifted. 

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I do want my money, but I really want some answers, too.  I want an answer to what exactly is happening.  But the person in HR I've been speaking to doesn't seem to know anything.  If I could sit down with someone who actually has some answers that would be ideal.  I'm not the only one who wants to know exactly what is going on.  They do not even want to say when we will get any type of payment, if ever.  The person in HR says they only have the information that is in the letter.  How is that possible? The letter is vague. I am not pressing for payment, I'm pressing for answers.  I don't have money for an attorney and I'm sure they realize that. 

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So sorry for your difficulty.  I agree that the company must be struggling, and if I were you I'd be worried if you'll ever get paid at all (in the event of a total business failure).

I'd suggest you mail a Claim for Benefits in writing, preferably by mail, certified, and with return receipt requested.  By law they will need to respond to you with a specific denial of benefits, which you can appeal.  This will help you build a case.  If you want to play hardball you can also request an in-person meeting, and threaten to contact the DOL if your meeting request isn't honored.

You should also request the most recent SPD, along with any SMMs thereto, and to review a copy of the current distribution policy.

They may be relying on the financed securities exception to explain the open-ended delay.  If so, you should ask when the loan(s) is scheduled to repaid so that the exception will expire.

Good luck to you and to Hobbico.  I hope they can turn things around.

 

 

 

 

Marcus R. Piquet, CPA

American ESOP Advisors LLC
5995 Brockton Ave Fl 2, Riverside, CA 92506-1833
(951) 779-1124 (v) (951) 346-0896 (fax)

mpiquet@AmericanESOP.com

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Agreed. Agreed. And especially with Mr. Piquet's recommendation to mail to the company a WRITTEN claim for benefits and get the latest SPD. The SPD will contain, among other things, the Plan's procedures and timeline regarding claim denials.

We wish you well.

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