Luis Miguel

Thank you for your responses. To answer some of your questions: The ESOP is leveraged He owned 100% of the shares prior to the sale of stock to the ESOP He is still an executive at the company I'm not sure about the 1042 question, but even assuming that he is entitled to ESOP allocations, you have provided me with some food for thought about compensation limits and whether the BOD even reviewed his executive compensation package. I will definitely look further into this now. Thank you again for providing some direction.

So the former owner of the company sold all shares to the ESOP. So he got paid for those shares in that transaction. However, now he is also a Plan participant. He would then arguably also get those shares (well at least some) allocated to his Plan account. Shares are allocated based on compensation, and since he's paid the highest, he gets the biggest peice of the shares released each year. Is this allowed? Somehow this seems wrong....

The ESOP loan and amortization schedule calls for payments to be made on March 1 and Sept 1 each year, but the company doesn't make a contribution (therefor the ESOP doesn't make a loan payment) until say April 1 and October 1. Its always the same payment but since its late more of the payment is going towards interest than principal. In the end that causes the ESOP to pay more in interest than originally determined under the original amortization schedule. I know in the normal business world you have interest accruing until a payment on a loan is made, but I thought ESOPs you couldn't make it pay more in interest than what was scheduled? I don't have anything to back that up so please enlighten me...

You used the word "discriminatory". If the plan was set up so that all those above 5k will be paid out in installments and all those under 5k will be paid out in lump sum, then that would seem to be impartial as that affects everyone regardless of what type of assets you have in the plan. In the hypothetical, however, participants are not treated the same across the board. You have different payments based on the type of investment. Isn't that discriminatory?

Dale, It is my understanding ESOPS work within a totally different framework and that the rules that apply to ESOPs do not generally apply to other types of defined contribution plans. Would it matter that the only type of investment that is extended over a 5 year payout schedule are those with employer securities? Those who do not have employer securities get all their payout at once regardless of the amount of $$. Also, would the fact that the plan was originally written to provide benefits in a lump sum distribution, but now it has been amended to stop providing this lump sum, bring into play ERISA's anti-cutback rules?

An employer sponsors a 401(k) plan which has some company stock. Can the company treat the distribution of company stock differently than other assets of the plan? For example, one employee who has company stock over "X amount" receives his benefit over 5 years, whereas another employee who does not have company stock, or has company stock below "x amount", can receive his benefit immediately. It would seem that the company is treating employees different just because the company wants to limit its buy back of company stock on an annual basis. This is not a publicly traded company and this is not an ESOP.

yes, the regulations did cover this, but as i understand it, these regulations were officially removed.

Under ERISA 407, it states that a plan cannot acquire employer securities if immediately after the acquisition, the value of the shares exceeds 10% of plan assets. My question is: if no further shares are purchased, yet the value of the shares in future years goes up beyond 10% of total plan assets, does the plan have to sell off shares to get back down to 10%? I don't believe it has to but others say yes.

The plan sponsor has been out of business for several years now; however, they are still a registered corporation in the state. The PSP sponsored by the company is still in place after all these years without contributions. Participants cannot get their benefits since the plan does not allow for rollovers or distributions until participants reach normal retirement age. This is not an abandoned or orphan plan, the trustees do pay individuals out when they reach normal retirement age. My question is: Should a Plan be terminated once the Plan Sponsor ceases doing business? It is evident that the trustees do not wish to terminate the plan because their accounts are invested in real estate holdings....

:confused: Company had an ESOP and 401(k) Plan. The ESOP was "merged" with the 401(k) Plan. All assets of the ESOP are now in the 401(k). However, participants assets coming from the ESOP were not fully vested upon this merger of the Plans. I know that if a Plan is terminated participants become fully vested. Should the company have fully vested paricipant assets that were once in the ESOP but now in the 401(k) Plan?

If ERISA only applies to pension and welfare plans and a Cafeteria Plan is a Fringe Benefit Plan, why is there an ERISA Technical Release 92-01 on the matter of wether contributions for cafeteria plans must be held in trust??

The employer did not give the full 60 day notice which is why this question arises. The employer accepts the fact that the mass layoffs fall under WARN and I know that WARN does not require payment of severance pay. The question was whether one benefit, severance pay, can be reduced because of the WARN requirments; or vice versa....WARN 2104(a)(2)states "the amount for which an employer is liable under paragraph 1 shall be reduced by...." Does the payment of severance reduce what they are required under WARN to pay???

The situation is this: a company had a severance "package" it offered to those employees they have had to lay off. Recently the company has downsized tremendously, placing them under the requirements of the WARN Act. Because of this, the company adopted a formal severance "plan" which says that those employees falling under WARN will have their severance benefits reduced by the amount the employer has to pay them under WARN. Is this fair? How can 2 employees be treated differently under ERISA just becuase one employee falls under WARN? And what about WARN, does the statute say you can reduce payment if the employer has set up some sort of severance package for the outgoing employee??