ESOP distributions

[Carla G.]

It is not clear to me from any source I've read whether an employee who has terminated employment can take a distribution in order to roll it into another plan without waiting five years. The "qualified retirement plan distribution rule" at 401(a)(14) seems to indicate he may do this so long as he has 10 years as a participant and has separated from service. Can anyone clarify this? Thanks

[ESOP Guy]

An ESOP can be set up to make you wait the 5 years. It doesn't HAVE to be that way but it CAN be that way. If the plan you were in is set up that way then most likely you have to wait.

There some exceptions if you are age 65 or at Normal Retirement Age and been in the plan for 10 year which you seem to be aware of based on your question.

You might be reading the 401(a)(14) rule wrong. It is the LATER of:

1) Age 65

2) Normal retirement Age (NRA)

3) 10th Anniversary of Participation

4) Termination

So if you have the 10th Anniversary part and terminated but are only age 50 you would have to wait until age 65 or NRA which in most ESOPs is 65 for this rule. Obviously at age 50 the 5 years would happen first.

If you were age 62 at termination and was past the 10th Anniversary of Participation then you would only have to wait until the plan year after you were age 65 which is 3 years.

If you think you should be paid and you are being told you can't start by asking questions of the people at your former employer who deal with the ESOP. Get a copy of the SPD. They should be able to explain when and how you should be paid.

Hope that helps.

[ESOP Guy]

Here is a link to the rule

https://www.law.cornell.edu/cfr/text/26/1.401(a)-14

Note is says:

60th day after the close of the plan year in which the latest of the following events occurs -

[Carla G.]

Thank you very much. I did understand the "later of" language but did not understand that "retirement" in that context meant "at the date you would be able to retire" so that made it confusing. I have the plan and SPD. I made a claim for benefits for the client, and we got a response that met none of the 503 claims procedure regs, and was written by the company's controller, not the plan committee. It just said he didn't meet the plan requirements--no other explanation. The stock has been tanking the last few years and client wants to get his money out before it's gone.

I will take another look at the language in the plan, but it mimics (a)(14) so we are probably out of luck. Thank you again.