ESOP Distrubutions

[Guest jackso]

Upon hard times, my company has announced the divestiture of my division.

The summary plan description for our ESOP says that distribution will commence on the fifth plan year after terminating employment for reasons other than normal retirement age, permanent disability or death. Also no distributions will be made until any loan obtained to acquire stock is fully repaid. The employees are afraid there won't be any money left in five years. Is there anything we can do?

[RLL]

The provisions for ESOP distributions which you stated were in the SPD appear to comply with the legal requirements applicable to ESOPs. Presumably, the actual ESOP plan document says the same.

It may be possible that the divestiture would constitute a "partial termination" of the ESOP. This would require 100% vesting of all affected participants, but would not require earlier benefit distributions under the law. However, the ESOP plan document may (not likely) provide for earlier distributions in the event of a partial termination.

It also may be possible that a buyer of the division could require earlier ESOP distributions (for employees of the division) in connection with the purchase. The employees might consider trying to talk to someone at the buying company to request that it try to negotiate early ESOP distributions for the employees. The buyer would prefer acquiring a division with happy employees. This may be difficult, but why not try?