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Diversification rights for former employee


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Just want to see if I've got this right - if a participant terminates after age 55 and 10 years of participation during the 6-year diversification period, they continue to be able to diversify, correct? Or does that go away when they terminate employment? I believe it is the former. Thanks.

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This is a grey area.  It would be nice if the plan document told you how to do this. 

Most ESOPs I work with break down like this:

1) For plans that make a person wait to start their termination payments they still give them a right to a diversification.  I don't think I have ever seen them getting no payments. 

2) For plans that pay the year after termination most give the right to diversification plus the termination payment. A small number only give the termination payment (most common if they pay lump sum as they clearly can take it all.  But a few only pay say the 1 of 5 payment which could be less then the diversification) A very small number give up to the greater of the two.  So if a diversification would allow 25% and the 1 of 5 payment gives 20% they would only allow the 25%.  Obviously, in no case can the mix of payments be greater then 100% of their balance.

 

As you can see your understanding is the most common but I have never seen anything that say you have to do it that way.  If a plan does something other then your understanding I would get it in a distribution policy or plan and be consistent. 

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