Can a company modify their ESOP bylaws to avoid paying out ESOP distributions to employees who have left the company to work for a direct competitor?

[associate456]

I voluntarily left my position at an ESOP company (Company X) in 2013 after being fully vested, with $ 100,000+ ESOP account balance at the time of my departure. I was notified that my ESOP distributions would begin somewhere around the fifth year from my leaving Company X. Myself, along with a few others who left the company work for direct competitors of Company X. In early 2015, Company X put in a "Competitor" clause to their ESOP bylaws that states that it will void the ESOP benefits of any employee who leaves the company to work for a direct competitor. Company X has also sent letters to fully vested employees who left the company in 2013, stating that they will be disqualified from their ESOP distributions according to this new "Competitor" clause just put in place in the 2015 bylaws. Can a company modify their ESOP bylaws to avoid paying out ESOP distributions to employees who have already left the company to work for a direct competitor?

[ESOP Guy]

Are they saying you will get no benefit or you simply can't take your benefit in the form of stock?

I am reading your description as the former and not the latter. I read your description as it is your understanding you will simply never get paid, is that your understanding?

Thanks

[JRN]

No, the Company cannot avoid paying you your benefit because you now work for a competitor.

[RLL]

Forfeiture of otherwise vested benefits for this reason would likely violate the vesting requirements of ERISA.

[associate456]

Are they saying you will get no benefit or you simply can't take your benefit in the form of stock?

I am reading your description as the former and not the latter. I read your description as it is your understanding you will simply never get paid, is that your understanding?

Thanks

Correct. It is my understanding that I will never get paid.

[ESOP Guy]

Then as others say that would violate the law.

The reason I asked was because what they are doing is such a well known wrong I am having a hard time believing that any lawyer would ever agree to the idea.

Maybe make sure you understand it correctly once sure of that you will need to decide on the next course of action. However, the rules are clear that they have to pay a vested benefit.

[ESOP Guy]

Not trying to be rude here but I would like to ask one more question because I am shocked someone would try this.

When you say ESOP you mean it is an Employee Stock OWNERSHIP Plan and NOT some kind of stock OPTION plan correct?

[david rigby]

... or some other plan that falls under the definition of "non-qualified plan"?

[mbozek]

In an ERISA plan bad boy clauses which forfeit benefits for violation of company policy or crimes are prohibited except in the limited case of a fiduciary who uses plan assets for his own benefit.

I don't know why corp management would launch such a kamikaze strike that will bring the full weight of the EBSA down on them as soon as it is reported by a participant.

[associate456]

Not trying to be rude here but I would like to ask one more question because I am shocked someone would try this.

When you say ESOP you mean it is an Employee Stock OWNERSHIP Plan and NOT some kind of stock OPTION plan correct?

Yes, it is an "Ownership" plan.

[ESOP Guy]

Then it is a good thing you went to work for the competitor because your former employer is either too stupid or greedy for you to want to work for them.

[Belgarath]

This is so unbelievable that I have to wonder if there isn't SOMETHING more to it than what you have stated - and I mean no disrespect to you. It is just hard to even imagine that any company sponsoring an ESOP, which almost always requires an attorney and TPA involvement, would do something so blatant.

[jpod]

I agree; highly improbable.

[david rigby]

No disrespect to the original poster, but I have doubt that this is a qualified plan.

Let's go back to the word "bylaws". Normally, a plan does not have bylaws. It has a written plan document. (There might also be administrative procedures. One hopes those are written also.)

If an ERISA-qualified plan, you can request a copy of the actual plan document. It also has a summary plan description (SPD) that must be provided to all participants. Do you have the SPD? Any other employee communication?