Hardship Withdrawal From ESOP

[Guest kappel98]

I am 44 and have been on Long-Term Disability for over 6 years. I have an ESOP with my employer valued at $65,000.00. The ESOP is part of my employer's Retirement Plan.

Last year i requested a distribution assuming that disabled equated to retired. Unfortunately, the Summary Plan stated that retired is 55 or older regardless of disability status.

I am in desperate financial need of these funds and want to request a Hardship Withdrawal instead. The Summary Plan makes no mention of either allowing or prohibiting this type of distribution.

My questions are:

Do i have any right to a Hardship Withdrawal of these funds if it has not been prohibited in the Summary Plan?

Does the recent legislation regarding Retirement Plan distributions benefit me considering my request and situation?

Can an exception be made if the Retirement Plan Committee or Fiduciary allows it?

Thank you in advance to anyone who can give me some advice or recommend a resource so i can research this further.

[mbozek]

The terms of a distribution from an ESOP is a condition of employment which is defined in the plan. The plan does not have to allow hardship distribution. If distribution is limited to age 55 and there are no hardship distribition then the funds are not available. Q- are funds available if you terminate employment?

[Guest kappel98]

hi mjb, thanks for responding and for the advice.

The funds are available if i terminate but i would not receive them until i turned 55. Again....the age problem.

And to terminate would mean sacrificing other benefits that i need right now, namely medical.

But again, thanks for the response.

take care, mike

[Kirk Maldonado]

As was correctly stated by mbozek, you can't receive a hardship distribution unless it is expressly permitted by the terms of the ESOP.

I've done a lot of work with ESOPs over the years, and I've never seen one that permits hardship distributions.

[Guest kappel98]

Thanks Kirk, appeciate you letting me know.

Take care,

Mike

[lbeach2000]

On 12/28/2002 at 11:02 PM, Guest kappel98 said:

Thanks Kirk, appeciate you letting me know.

Take care,

Mike

 

[lbeach2000]

On 12/28/2002 at 10:36 PM, Kirk Maldonado said:

As was correctly stated by mbozek, you can't receive a hardship distribution unless it is expressly permitted by the terms of the ESOP.

I've done a lot of work with ESOPs over the years, and I've never seen one that permits hardship distributions.

What about when you are terminated and the company has rolled it over to a 401k profit sharing plan?

[ESOP Guy]

It is governed by the terms of the plan.  Ask the plan administrator if it is allowed.  It might be allowed but the plan would not be required to offer a hardship payment of funds rolled over to a 401(k) plan from an ESOP or any other type of plan.

[ESOP Guy]

Also do you mean you have been terminated or the ESOP has been terminated? 

If you are terminated then can't you just take your full benefit from the 401(k) plan?  Also, it is rare to offer a hardship payment to someone who is terminated because they can take their full benefits. 

My first answer assumes you meant the ESOP was terminated and you are still employed by the company that had the ESOP. 

[lbeach2000]

17 minutes ago, ESOP Guy said:

Also do you mean you have been terminated or the ESOP has been terminated? 

If you are terminated then can't you just take your full benefit from the 401(k) plan?  Also, it is rare to offer a hardship payment to someone who is terminated because they can take their full benefits. 

My first answer assumes you meant the ESOP was terminated and you are still employed by the company that had the ESOP. 

 No the employee was terminated

[lbeach2000]

21 minutes ago, ESOP Guy said:

Also do you mean you have been terminated or the ESOP has been terminated? 

If you are terminated then can't you just take your full benefit from the 401(k) plan?  Also, it is rare to offer a hardship payment to someone who is terminated because they can take their full benefits. 

My first answer assumes you meant the ESOP was terminated and you are still employed by the company that had the ESOP. 

 No the employee was terminated The esop was not rolled over til Nov. 2016 but was terminated Dec. 2015

[ESOP Guy]

I guess we need to step back and make sure everyone (mostly me) understands the facts although the basic answer is most likely still correct- that is to say most likely the plan terms control.

Is there really two plans or is this a KSOP?  A KSOP is an ESOP that has a 401(k) component but is legally still one plan.  They can operate like there are two plans but I am starting to wonder if this isn't a KSOP. 

So employee Joe terminated from Xyz corp in 12/15.  His ESOP balance was rolled to the Xyz corp in 11/16.  It sounds like the company moved the funds and this wasn't an election by Joe.

Is the above correct? 

Can Joe just take a full distribution of all the funds in the 401(k) plan?  If so, why not just do that?

If not, what conditions need to be met to get 100% of the funds out of the 401(k) plan?  

Once again most likely the plan provisions would control here and you would have to ask about a hardship withdrawal.  The plan isn't required to offer a hardship provision and it would be very rare to offer one to a terminated employee. 

I am getting stuck on the fact the person is terminated and can't get his money.  It is sounding like this might be a KSOP that cashes a person out of the company stock but still makes them wait 5 years to get their benefit.  They simply use the 401(k) portion of the plan to park the cash until the distributions can be made per the terms of the plan.  If that is true then they wouldn't offer a hardship because the point is to make the person wait the 5 years. 

So bottom line is most likely there isn't any hardship option for this person.  They are never required to offer a hardship distribution.  I hope I am helping and not making things more confusing. 

[lbeach2000]

He wanted full benefits the only thing they offered was 1/5. Mass Mutual says he can get his full benefit but has to get forms from the former employer. Employer says :

Mass Mutual was referring to the 401k plan but you do not have any 401k plan money in your account.  Your entire account at MassMutual is ESOP source funds.  Hardships are not allowed in the ESOP so there is now way for us to allow you to withdraw money at this time.  There aren’t any exceptions that can be made.  The company has signed a legally binding document that states we will follow the rules of the ESOP plan document.  Therefore, the ESOP source funds must follow the ESOP distribution rules per the ESOP plan document. 

 

The distribution period occurs annually in 3^rd/4^th quarter.  You will receive a distribution packet at that time which will list the amount of funds that are available for distribution.  Please be sure to provide us with address updates as they occur so we will be able to forward your distribution packet to the correct address.

[ESOP Guy]

There is the answer no hardships.  The idea of ESOP money paid over 5 years is very common. 

[lbeach2000]

Mass Mutual says all he needs is a separation of employment distribution form and he could have his money in less than a week

[Bill Presson]

Sounds like Mass Mutual and the employer need to have a discussion and get on the same page.

[ESOP Guy]

Mass Mutual is most likely not the legal Plan Administrator.  I agree with Bill the two sides need to have a discussion and get the same answers to the questions.