Compensation for delayed distribution

[Guest Sherry S]

Does an ESOP have an obligation to notify terminated employees when they are eligible for distributions, and are there any consequences for their failure to do so? Distributions from my ESOP account should have begun in 1997, but I did not learn of this until this year (previous requests for distributions were denied by my former employer who stated that I wouldn't be eligible until my normal retirement age which I now know is not true). The value of the company's stock has gone down since 1996. If the distribution had begun in 1997, presumably I would have had a reasonable return in investment income over this period instead of losing money. Can they begin the distribution now, payable in six installments, without any obligation to reimburse me for the loss I incurred by their failure to begin the distribution in 1997?

[RLL]

It depends on the specific provisions of the ESOP, as well as your age and the date you terminated employment.

You should have been given a summary plan description ("SPD") when you became an ESOP participant. The SPD is required to describe the conditions required to receive benefit payments, etc. Perhaps you failed to make a claim for benefits on a timely basis.

Check the SPD and the ESOP plan documents (which must be made available to you upon request) to ascertain whether you have a valid claim.

[Guest Sherry S]

My employment was terminated in 1991 at age 40. At that time I was told that I was not eligible for benefits until normal retirement age. In any event, distribution would not have been possible at that time because the plan was leveraged. The loan was subsequently paid off in April of 1995 and the plan documents indicate that distribution should have begun at year-end 1995 (not 1997 as I mistakenly stated in my initial request). Terminated employees were not notified of the note repayment and the fact that they were now entitled to distributions. In fact, we were still advised that distribution was not possible until normal retirement age. I did not find out otherwise until I was finally able to obtain a copy of the complete plan documents this year (this was not a trivial matter - even though they are subject to penalties for failure to respond, it took 5 months to get this). Whether my claim is valid is not in dispute. They now agree that an immediate distribution is required. The question is whether they have any obligation to compensate me for the reduction in benefits caused by (1) their failure to inform former employees of the change in conditions resulting from the satisfaction of the ESOP loan, and (2)their repeated rejection of claims with the response that former employees were not eligible for distributions until normal retirement age. With respect to the latter, the plan trustee and administrator claim to have been unaware that the plan provisions had changed when the plan documents were revised to conform to current law, I believe in 1994. Why am I bearing the cost of their errors?

[RLL]

The folks responsible for administering the ESOP are obligated to operate in accordance with the plan documents, as amended. It is a violation of ERISA for a fiduciary to fail to act in accordance with the plan. Being "unaware" of plan amendments is a lame excuse.

You (and the others similarly situated) may very well have a valid ERISA claim against plan fiduciaries if they failed to provide benefits to participants as required under the terms of the plan documents. You may wish to retain legal counsel to provide specific advice as to your rights.

Another option for you and the others would be to contact the nearest office of the Pension and Welfare Benefits Administration of the U.S. Department of Labor....but remember, federal bureaucrats usually don't act very promptly in these situations (especially in December when they have to finish their Xmas shopping).