ESOP Plan

[Guest Monica K]

We have just discovered that after changing jobs we are not entitled to do anything with our ESOP until January 2004 - no rollovers, changes nothing. Have been with the company 12 years. Please advise on how this is possible and what laws govern ESOP distribution upon termination of employee.

[Guest stryan]

Given that the information you have provided is not sufficient to determine with a high level of confidence what the actual reason for the timing of the distribution, it is most certainly quite possible and entirely legal.

The plan document determines the timing of the distribution and a fairly common requirement would be that the terminated participant incur a break-in-service prior to becoming eligible for a distribution. A break-in-service is a plan year in which the participant has less than 500 hours of service credited with the employer.

Thus if you have worked more than 500 hours during 2002, your break-in-service year would be the 2003 plan year making you eligible for distribution in 2004.

[QDROphile]

It is also common not to allow distributions until 5 years after termination of employment unless you retire or die. IRC 409(o). This is actually a good rule, because otherwise the ESOP could string you out until you are 65.