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ESOP Balance Restoration Timing

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Hi all,

When should a previously forfeited ESOP balance be restored to an employee’s account?

Should the forfeited balance be restored upon return? After a year of service? Retroactively to the day of return after a year of service? 

I’ve confirmed with the Admin that it’s eligible for restoration. I left at 0% vested and my entire balance was forfeited. I returned a year and a half later, and have put in a full year of service since.

There is nothing specific that I can find in the document. It states, “Forfeitures: Some participants will terminate employment before they are fully vested in all of their Accounts. The portion of those Accounts that is not vested is called a “forfeiture.” Forfeited benefits will be used to pay Plan expenses or added to the Company’s contributions and allocated to eligible participants’ Accounts. If you are rehired by an Employer after your non-vested Account has been forfeited but before you have five consecutive one-year breaks in service, you are eligible to have the amount of the forfeiture restored to your Account. If you received a distribution of the vested portion of your Account, you must pay back to the Plan the amount of your distribution to have the forfeiture restored. Whether you repay the distribution or not, your prior vesting service will be counted for vesting your Account.”

The timing of the restoration makes a rather huge difference in this case, since the appreciation of the balance through 2020 is significant. I returned in February 2020 but my shares were only restored in March 2021. My thinking is since I didn’t receive a distribution at termination, I would have been fully “repayed” upon rehire and immediately eligible for restoration. 

If not specified in the document, is there a standard to follow? Is there somewhere else in the document I should check?

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When you say you can't find anything in the document are you saying you have a copy of the full plan document and not just a Summary Plan Description (SPD)?

I would expect the plan document to spell out how and when the restoration is made.   It should spell ought how the restoration is computed.   Does it include earnings or not?  The most common provision is to not include earnings.   That is to say if you account was worth $10k when it was forfeited they would put enough stock and cash into your account to be worth $10k at year end of the year of the restoration is easily 99% of how all ESOPs I have seen are written. 

In fact there is usually an explicit statement that someone who had a deemed distribution like it sounds you had if there is a presumption of the distribution being repaid.   It might, but not always, tell you when the presumed repayment happens.  

If you have the actual document in pdf format I would search for the word "forfeit" and see if you can find the restoration provisions.   I would also search for the word "deemed".   That should help you find the deemed distribution section of the document.  Between those two sections often times the restoration provisions can be found.  

Or go back to the company and see if they can explain the method used and maybe which part of the document they base that on.  I wouldn't hold my breath on getting the document section question answered but it can't hurt to ask. 

In short the plan document ought to really have the answers to most if not all of your questions.    So your quest for answers needs to start with finding out what the plan document actually says.   

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