Must the Company Pay the Total Lump Sum Distribution Now ?

[Guest Grecco]

Background:

1) Terminated employee completes all the required forms for a Lump Sum Distribution from the company’s ESOP.

2) A company agrees that the terminated employee is entitled to a Lump Sum Distribution of his entire account balance.

3) Company states that they don’t have the required funds for the Total Lump Sum Distribution.

4) Company states they will pay a portion now and provide an “IOU” for the remaining balance.

Questions:

Is this legal?

Is the company Required to pay the Total Lump Sum Distribution now?

Can the ex-employee force the company to pay....if so how?

How should this ex-employee proceed?

Thanks for your time.

Lisa

[GMK]

Additional background:

http://benefitslink.com/boards/index.php?/topic/53880-esop-and-change-in-distribution-policy-after-required-forms-signedcompletedsubmitted/

http://benefitslink.com/boards/index.php?/topic/54684-can-a-company-change-its-reason-for-a-denying-a-claim/

[QDROphile]

The law allows payment for stock distributed in lump sum part in cash and part by promissory note, and the plan may have terms that allow payment in accordance with that law. The rules are complex and ther are standards and conditions. The summary plan description of the ESOP should explain the distribution and payment options.

Based on all of you posts, it appears that the real problem is the the employer does not have the funds to pay the benefit in accordance with the plan terms or original expectations. What is needeed is a competent adviser for the participant to understand all of the facts and circumstances so the participant understands the participant's rights and what make sense in terms of compromise or challenge. Having theoretical rights may be nice, but that does not guarantee that the participant will get what is due on those terms. The situation is complex and the best solution is most likely not going to be found in the books or in this forum.

[Guest Grecco]

The plan is silent when it comes to paying with a promissory note – Can the company still use a promissory note?

If a promissory note is used – What type of collateral must be put up?

(Note: The plan document specifies that ESOP stock cannot be used for payments to an ex-employee. )

Thanks,

Lisa

[ESOP Guy]

You really need a lawyer for this. I am doing this from memory but it can only be done if you distribute in the form of stock. The person sells the stock to the company via their put option. The company can give cash and a note to pay the put option. However, this isn't a very practical option. The note has to meet very strict rules.

What you will find is that one of the rules is the note has to be secured. These rules pretty much end up saying that in case of the company can't pay or goes bankrupt the person still gets paid. So company has to get a bank to guarantee the note or the note has to have a lien on assets that this person collects 1st if they are sold. So the few times I have had a client look into this they find that if they don't have the money to pay now they can't meet this requirement.

IF YOU TRY THIS GET A LAWYER THAT KNOWS ESOPS.

[Guest Grecco]

Thanks for your input. Its much appreciated!

Lisa