Who pays for ESOP termination process?

[Guest CJS]

The company that I work for is in chapter 11 and the new owners want the ESOP plan terminated. The present value of the stock is $0. The stock is not publicly traded. There is some cash left in the cash accounts associated with each participants ESOP account. The trustee is using the cash for the ESOP termination costs. Is this legal or should the company be picking up the costs?

[mbozek]

The allocation of costs of terminating a plan of an employer in bankruptcy is within the jurisdicton of the banckruptcy ct. The Trustee who is appointed by the court will make the decision of who will pay for the cost of terminating the plan. You should contact the trustee.

[RLL]

Hi CJS ---

If I were the ESOP trustee, I would not agree to use the ESOP's cash to pay the expenses of terminating the ESOP. Such expenses are being incurred for the convenience of the company (and its "new owners").

In addition, the ESOP trustee should not so easily accept as fact that the ESOP's stock has no value. Were there shareholders other than the ESOP who received some consideration or continuing interest for their stock? Perhaps the ESOP trustee should negotiate to try to obtain some value for the stock.

[mbozek]

Bankruptcy ct orders are enforceable under federal law. Also ERISA does not preempt any other federal law such as bankruptcy law. Finally the owner of the assets of the bankrupt co is the bkcy ct which has title to the estate. There are no owners while the company is in ch 11.

RLL just who is the plan trustee supposed to negotiate with? The ESOP trustee can only negotiate with the bankruptcy trustee who is directing the termination. The value of the equity interest in the company is the value which remains after all administration expenses and creditors are paid off. In almost all bankruptcies the holders of equity are wiped out 100% and creditors receive ony a few cents on the dollar. And who would pay for the cost of the negotiaions?

[Guest eafredel]

While I think I understand the points that are being made about bankruptcy law, the question of whether plan assets can be used to pay the costs of plan termination is addressed in DOL Advisory Opinion 97-03A. It is a fiduciary question under ERISA and requires an analysis of the terms of the plan document and of whether the termination of the plan is for the benefit of the participants or the plan sponsor. The cash in the ESOP is not an asset in the bankruptcy estate of the employer.

[Guest CJS]

Thanks for the responses. (1) I have asked, and I have been told that the court has authorized the payments out of the participants cash funds. (2) I have referred to the plan document and it seems like the company is under no obligation to pay for any plan expenses and the Trustee can use the ESOP funds to pay for costs. (3) As for 97-03A, it does not refer to ESOP's but it does mention tax qualified pension plans. It to, would seem to indicate that the plan pays for the termination. I quote from 97-30A, "Accordinly, reasonable expenses incurred in implementing a plan termination would generally be payable by the plan."

Not only have I lost a high six figure retirement, I am also losing the last few dollars.

In the future if anyone mentions the word ESOP, I will respond with some well chosen four letter words of my own.