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ESOP plan termination


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Hi, 

One of my client is terminating the ESOP plan, this is the first time I'm assisting a ESOP plan termination.  Could you help me understand how different is a ESOP Plan termination from a 401(k) Plan Termination. 

  • Terminating due to acquisition Part will be moving to the acquiring company plan - Can participants move the funds in- kind to the acquiring company 401(K) ?
  • The plan does not have any Stock assets - Does the sponsor have 6months to distribute assets or is there a 6month rule ?
  • If the participants do not take action can these be liquidated and rolled over to an IRA like we would normally do in a 401(k) plan. ?

 

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An ESOP without stock is odd.   What happened to the company stock?

The facts are a bit thin but if all there is in the trust is cash, and mutual funds this is pretty much a terminating profit sharing plan.   You can in many ways just think of it like that if the facts are right.  

Things change a lot if there is any company stock or there is any kind of acquisition loan in the ESOP.  

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The deal settled in cash per share, the stock proceeds funds was established and holds cash, the cash is held by the stock trustee and the stock proceeds funds trades monthly for exchange out and sales of the stock proceeds. 

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So do you know if there are any escrows or any other hold backs from the stock sale? 

I have had ESOPs take years to fully terminate because part of the sale's proceeds was put into escrow until some metrics were hit.   At that time the rest of the sales proceeds were put into the ESOP trust.   That might slow the full termination down.   

However, once the stock has been exchanged for cash and it is cash in the trust as a general rule the termination is like any other DC plan's termination. 

If there was an acquisition loan at the time of the sale something has to happen with the shares in suspense.   I would let the lawyers give direction on that. 

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There is no Loan, I don't believe there is escrow but I will double check. 

Since the stock proceeds funds are traded on a monthly bases will that delay, should this be put into money market?  

Thank you...

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  • 1 month later...

When a 401K plan terminates participants are generally provided 30- 60 days to request for their distribution and if they fail to respond plan sponsor can direct to process force out distribution, for an ESOP plan upon client direction can we rollover the unresponsive participants funds to another 401K plan (they have a Core plan) .  Any one with good address to be rolled over to 401k plan (CORE plan) and any one with bad address to be rolled over to an IRA is this permissible? 

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58 minutes ago, PS said:

When a 401K plan terminates participants are generally provided 30- 60 days to request for their distribution and if they fail to respond plan sponsor can direct to process force out distribution, for an ESOP plan upon client direction can we rollover the unresponsive participants funds to another 401K plan (they have a Core plan) .  Any one with good address to be rolled over to 401k plan (CORE plan) and any one with bad address to be rolled over to an IRA is this permissible? 

I would say "yes". 

In fact if they wanted I think all the people who don't respond could be sent to an IRA.   It wouldn't have to go to a related 401(k) if they don't want to mess with it.  

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That's what I thought, any legal consequences if they rollover to CORE plan only the ones with good address?  I believe it would be unfair to rollover only the ones with good address to the CORE plan 

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19 minutes ago, PS said:

Any legal consequences if they rollover the unresponsive participants funds to the  CORE plan only for the ones with good address? 

I can't find what I'm looking for, but aren't terminating plans required to roll force outs (unresponsive participants) over to another plan sponsored by the employer (or within the controlled group, if applicable)?

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