Diversification Rights in Terminated ESOP

[Guest Agnes]

Is a terminated ESOP required to extend diversification rights to terminated employees? Terminated ESOP provided diversification through plan sponsor's 401(k) plan which is also terminated.

[QDROphile]

Are you concerned that a particpant is entitled to exercise diversification rights at an earlier date than the expected distribution on termination? Or do you mean that the ESOP has been frozen? Freezing the ESOP will not excuse the plan from providing diversification.

[Guest Agnes]

Yes - A Form 5310 has been filed and the plan sponsor planned to make all distributions (except RMDs) once a letter is received. It appears that the sponsor will have to allow the terminated qualified participants (all qualified participants even if they were employed by the acquiror) the ability to diversify out of the terminated ESOP by distributing the shares (since the 401(k) plan was also terminated)

Sound right?

[QDROphile]

Plan terms may have to be amended to describe the new approach to diversification.