ESOP annual participation

[Guest cybrworld]

I hired in with a Construction company on 2/28/05 under the ESOP plan. Their plan year ends on March 31 of each year.

I was laid off the following year on 3/05/06 (one year and 5 days later) due to lack of work and then recalled back for work on 4/18/06 (5-6 weeks later). When I was rehired, I asked the Company Controller if all my seniority continues from my original employment and he confirmed that it would. As proof, I did not have to wait another year for my 401K, etc.

Now I am being told that I did not qualify to participate in the plan for the fiscal year from 3/31/06 thru 3/31/07 because I was not employed on 3/31/06 even though I worked well over 2,000 hours that year. Can they do that? I mean, just because I was not employed on 3/31/07, I don't qualify? Can anyone help me?

[QDROphile]

It is common to have a "last day" requirement for allocation of certain types of retirement plan contributions. If you are not employed in a qualifying postion on the last day, no allocation for that year, no matter what else. What you describe fits a "last day" requirement. Look at the summary plan description for the plan (for that year). It would describe a "last day" requirement, if applicable.

[Guest cybrworld]

It is common to have a "last day" requirement for allocation of certain types of retirement plan contributions. If you are not employed in a qualifying postion on the last day, no allocation for that year, no matter what else. What you describe fits a "last day" requirement. Look at the summary plan description for the plan (for that year). It would describe a "last day" requirement, if applicable.

I appreciate your response and understand the 'last day' requirement, but in actuality, since I was temporarily laid off and recalled back shortly, it was obviously not my last day. It is customary practice in construction to temporarily lay off people when there is no work and to call them back when they pickup more work. If I was laid off one month later, or anytime after that, and everything else stayed the same, I would've qualified. To pin the qualification on one particular day of the year seems to defeat the very intent of the annual qualifications.

[Guest tmills]

The plan years run from 4/1 to 3/31. It's not clear based on your question what year you are talking about, the year ended 3/31/06 or 3/31/07. You don't say you were employed or not on 3/31/07. Based on your facts, the "normal" situation would be that you would have become a participant 4/1/06, except that you were not an employee on that date. However, a little over 2 weeks later you were an employee. Your rehire date would "normally" be your entry date. If you were still employed on 3/31/07 and had met any other requirements to get a contribution (likely 1000 hours,) you would receive a contribution for the plan year ended 3/31/07. I put normal in quotes because that is the way most plans work. Your esop may not, but I doubt it. We often see employers that don't understand how the rehire provisions work and improperly exclude people. It's more strange in this case baecause it sounds like they did as described above for the 401(k) plan. If the ESOP SPD does not explain entry dates and rehire provisions, try to get an explanation from them why the esop and 401(k) are different.

[Guest cybrworld]

The plan years run from 4/1 to 3/31. It's not clear based on your question what year you are talking about, the year ended 3/31/06 or 3/31/07. You don't say you were employed or not on 3/31/07. Based on your facts, the "normal" situation would be that you would have become a participant 4/1/06, except that you were not an employee on that date. However, a little over 2 weeks later you were an employee. Your rehire date would "normally" be your entry date. If you were still employed on 3/31/07 and had met any other requirements to get a contribution (likely 1000 hours,) you would receive a contribution for the plan year ended 3/31/07. I put normal in quotes because that is the way most plans work. Your esop may not, but I doubt it. We often see employers that don't understand how the rehire provisions work and improperly exclude people. It's more strange in this case baecause it sounds like they did as described above for the 401(k) plan. If the ESOP SPD does not explain entry dates and rehire provisions, try to get an explanation from them why the esop and 401(k) are different.

Hi TMills

Thanks for your response. In answer to your question, I am talking about qualifying for the year ending 3/31/07.

*** I hired in on 2/28/2005 and was laid off a little over one year later on 3/05/2006 ( this was my qualifying year to Participate)

*** I was called back to work on 4/18/2006 and worked over 2,000 hours for 2006. They are saying because I was not employed on 3/31/2006, I do not qualify for the year 2006 (ending on 3/31/2007).

My company stated in writing: "I was not employed on the accounting date of 3/31/06 and am not eligible to participate in that plan year".

Do you know if I can get the ESOP "rehire provisions" in writing or is there someone that can help me?

Thanks again for your response

[GMK]

As QDROfile suggested, the first step is to find your copy (or ask the Plan Administrator for one) of the ESOP's Summary Plan Description (SPD). The SPD should explain how hiring, lay offs, and rehires affect your eligibility for receiving contributions.

The rules for the ESOP may be different from those for the 401(k). The 401(k)'s SPD will describe its rules.

[BeckyMiller]

I suggest that you ask for the plan's language on layoff, rather than just the SPD. You may have to pay for those copies, but my experience has been that the SPD will not typically provide sufficient detail to answer this question.

I am not aware of any special ESOP rules, but I have seen a lot of language on lay-offs that state that the participant is treated as if they were never gone if they return to work as requested following a lay-off. This language is ALWAYS a problem where any lay-off spans year-end and the company then needs to develop a uniform policy on how they handle that language.

You can start with the SPD, but do not be surprised if it is not particularly informative.