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Esop disqualified - Ttee obligation to participants


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Client's esop has been under audit for 2018-2020 by irs TEGE.

The IRS recently issued its notice of deficiency stating the plan was ineligible. (much of which related to a former esop advisor and much longer story) 

The TPA has calculated that there are 2 participants who left the company in 2020 and have not received any distributions for their vested shares. 
The distribution amount would be approximately $20k each.

We are assessing what steps to take for plan participants shares, if any. 

Q:Is trustee/plan administrator still obligated to pay distributions for a plan year that has resulted in being disqualified? 

Q: Wouldn't any share value be zero? $0. So partipcants even if fully vested, would have no value. 

Client plans on filing in tax court to challenge. 

Q: Does trustee have ability to freeze plan until a court has resolved the issues? 

Thoughts and comments appreciated. 

Thank you 

 

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On 6/28/2022 at 7:38 AM, Tax Cowboy said:

stating the plan was ineligible

You mean, "disqualified, right?"

On 6/28/2022 at 7:38 AM, Tax Cowboy said:

:Is trustee/plan administrator still obligated to pay distributions for a plan year that has resulted in being disqualified

Probably. Obligations under the plan under ERISA do not depend on plan qualification.

On 6/28/2022 at 7:38 AM, Tax Cowboy said:

Wouldn't any share value be zero? $0.

You said they were owed $20k apiece?

 

On 6/28/2022 at 7:38 AM, Tax Cowboy said:

Does trustee have ability to freeze plan until a court has resolved the issues

Trustee's obligation is to act with prudence, diligence, and loyalty to the plan's participants.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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