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Qualified Plan distributions for former employees receiving severance


Alonzo

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The ESOP's plan language is going to determine the answer to this question. However, an amendment that cahnges the Plan from allowing distributions at termination of employment under any circumstances, to allowing distribution only after severance payments cease will violate 411(d)(6).

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Guest Lee Kliebert

Company A acquires Company B, and terminates B's ESOP plan. Many employees are let go with 2-year severance packages. They are told that they cannot receive distributions from the ESOP while they are receiving severance payments, but can take distributions if they lump sum their severance payments. Otherwise, they must wait until a determination letter is received from IRS re plan termination.

There are other financial disincentives that make lump sum unattractive. Are there legal and/or practical reasons why former employees receiving severance benefits cannot request distribution as a terminated employee?

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