ESOP Termination - Merger/Acquisition

Hi, 

Sponsor wants to terminate the ESOP plan due to merger/acquisition. Its an individual design plan, Plan is terminating due to acquisition and the stock funds to be liquidated and transfer proceeds to Money market funds. There is a black out period until the processing of the merger proceeds is completed. The liquidation and settlement will be completed the week on 09/19/2022.  The sponsor intends to inform the part's that they have option to rollover into IRA, rollover into their 401k plan or the new employer 401k Plan or take cash distribution.  They are filing for 5310.  Is there something we will need to consider since they are filing for 5310 or just follow the normal termination process. 

Thanks

For DBPs, when we file a 5310 we typically suggest the plan sponsor wait to distribute until after the IRS D-letter is received. I don't know if there are any "iffy issues" on which you may want to wait for a D-letter or if the sponsor believes their plan is squeaky clean and no need to wait. This should be the plan sponsor's call with input from their legal counsel and maybe service providers.

4 minutes ago, CuseFan said:

For DBPs, when we file a 5310 we typically suggest the plan sponsor wait to distribute until after the IRS D-letter is received. I don't know if there are any "iffy issues" on which you may want to wait for a D-letter or if the sponsor believes their plan is squeaky clean and no need to wait. This should be the plan sponsor's call with input from their legal counsel and maybe service providers.

Thank you!

Has there been any consideration of any possible escrows at the closing of the sale of the company?

It isn't uncommon for part of the sales proceeds to be held in escrow pending certain metrics being hit after that sale.  So it is very possible the plan will not have 100% of the cash from the sale quickly after the sale.  This is mostly an issue of communication as that means there will be a future distribution form the plan.  The plan can't be fully terminated until that any such payments are made.  This can really slow down the termination of an ESOP.  I have had a few make 3 or 4 payments and keep the process going for years. 

This might be another reason to wait to get the D Letter to start payments.  If there is going to be a delay to pay everyone anyway might as well as get the D Letter.

Otherwise, I don't find ESOP terminations that different than PSP terminations.   Like all things ESOPs they tend to just move slower. 

2 hours ago, ESOP Guy said:

Has there been any consideration of any possible escrows at the closing of the sale of the company?

It isn't uncommon for part of the sales proceeds to be held in escrow pending certain metrics being hit after that sale.  So it is very possible the plan will not have 100% of the cash from the sale quickly after the sale.  This is mostly an issue of communication as that means there will be a future distribution form the plan.  The plan can't be fully terminated until that any such payments are made.  This can really slow down the termination of an ESOP.  I have had a few make 3 or 4 payments and keep the process going for years. 

This might be another reason to wait to get the D Letter to start payments.  If there is going to be a delay to pay everyone anyway might as well as get the D Letter.

Otherwise, I don't find ESOP terminations that different than PSP terminations.   Like all things ESOPs they tend to just move slower. 

 

I will check on the escrow.

Typically, you might find the plan sponsor of the ESOP to provide for a portion of the terminated ESOP vested account balances to be distributed (perhaps 50% to 70%) with the remaining vested account balances to be distributed following the receipt of the determination letter approving the termination.

Yes, check the transaction documents to see if there are any escrows or retention funds being held for some time period.