Distribution timing after termination of ESOP

[Mumen-Rider]

My company's ESOP terminated after sale of the company.  80% of the funds were distributed one year after the termination event.  The remaining 20% were supposed to have been distributed at the 2 year mark but the company is now stating that the distribution is delayed indefinitely because of "an issue with the Trustee."

I'm posting here because while legal guidelines for distribution of a still-active ESOP are pretty clear, I haven't been able to confirm the guidelines for full distribution of a terminated ESOP.  How long can the company delay on the remaining 20%?

Thanks for any insight!

[QDROphile]

Other than delay in the abstract, what is your concern?

You can request distribution of the balance of your account and force the issue into the formal claims procedure.  The plan will have to be more specific and forthcoming about delay in distributions as long as you pursue the claim correctly.  The process is not designed for immediate gratification.  You will have to be persistent and it will require some work on your part.  The plan is required to provide a copy of the procedures on request, and they might be in the summary plan description already.

[Mumen-Rider]

2 hours ago, QDROphile said:

Other than delay in the abstract, what is your concern?

 

Thanks for replying.  My concern is based mostly on my desire to get this money out of the cash-equiv holding account and into investments, but also on the fact that I no longer work for the company and would like this loose-end to be resolved.

I've requested a copy of the SPD so I can check the claims procedure.  Hopefully my request by itself might spur them into providing a more detailed explanation.

[Luke Bailey]

At the end of the SPD there will be a canned statement describing your rights as a participant and contact info for U.S. Employee Benefits Security Administration.

[QDROphile]

It is difficult to quarrel with a simple statement of fact about ERISA rights, but there is an implicit suggestion built into it.  I think that a better understanding of the situation, or a conclusion that the plan is stonewalling, is warranted before calling on the regulators.  Calling the regulators when there is not a problem will create problems.  Also, wanting to put the residual distribution dollars to work (presumably to invest rather than save you from the wolf at the door) is not very compelling unless you are dealing with very large sums.

[ESOP Guy]

Can you get or have more details?

I have seen some pretty slow ESOP termination wind downs.  Some of the time they are having issues getting a Determination Letter from the IRS.  A Determination Letter from the IRS is their way to saying we have looked at the plan and it is qualified at the termination. 

I saw one drag on for years becasue the money market fund the trustee got the plan into had an embezzlement and that put a lot of things into legal limbo.  The trustee was a well know bank and everyone got blindsided.  You can make all kinds of arguments about how the trustee needs to make the plan whole but that still is going to be the result of lots of lawyers doing a lot of talking. 

As QDROphile said if the total dollars are very large getting the DOL or IRS to come down on the plan might simply be spending your own money because all the professional fees to defend the plan might get run through the residual assets.  I would have to look again which of those costs the plan has to pay vs sponsor.  Although at times even if it is the sponsor if the sponsor sold and the cash is being held at the corporate level until the proceeds go into the ESOP the fees are really the ESOP's money in an economic sense not legal sense.  

I would see if they are willing to give you more insight into the situation and decide if you think they are delaying for a reasonable reason even if you aren't happy about it. 

[Mumen-Rider]

On 10/29/2018 at 2:42 PM, ESOP Guy said:

Can you get or have more details?

 

After I requested the SPD and a copy of the claim form, the plan admin advised me that the reason for delay was the death of the trustee.  It's been over two years since plan termination and I'm getting impatient, but I have to admit that sounds like a reasonable cause for delay.

[Luke Bailey]

Rereading your question, Mumen-Rider, I think to accurately assess how tardy these payments are one would need to know how recently the two-year earnout period ended.

[ESOP Guy]

A death of trustee could slow things but I agree with Luke knowing how long that was  could make a difference in terms of how reasonable it is.  

[Mumen-Rider]

Well I went back to confirm the dates and I admit to some embarrassment.  The ESOP termination was initiated upon sale of the company, which was 4/2017.  Payout of the first 80% occurred 10/2017.  The 20% holdback was supposed to be distributed 9/2018.  So, only two months beyond the promised date at this point, and a bit less than two years since termination.

Based on what I've learned on this site, despite being delayed, the distribution doesn't yet seem to meet the criteria for excessive delay.

Given that they've provided me with a plausible reason, and based on the timeline in the SPD re: claims process, I'll give it another few months before forcing their hand with a claim.  Thanks to everyone for responding!

[Luke Bailey]

Good luck, Mumen-Rider.