Can ESOP Trust "choose" whether someone is eligible for disbursement?

I have a significant amount of $ in an ESOP plan for a company where I terminated my employment in December 2016.  Their fiscal year runs through 9/30.  Finally in 2019 - I was eligible to request my first distribution - which I did - and requested the full amount paid out - as I just want to be done with all of this...  They chose to only pay out a partial distribution (~ 1/4 of what was in the account) - never informed me of how or why or anything else - just made a partial payment and closed the window of opportunity, so to speak.

Fast Forward a year, and it is now that the window to request a distribution is open again - and I would like to make another request for my $$ - as COVID has significantly affected our family and business financially, and there are some tax benefits to requesting it now.

I contacted the company who is handling my account (As this is what I am told to do by my former employer - not to contact them).  I was told that I "may not" be eligible to request a distribution this year - as the company can pick and choose who may or may not request one?!  How is this possible?  They already have the choice as to whether or not to pay me when I do request one...  Now they get to decide whether or not I can even actually make the "request"??  

Is it possible that since i requested a full pay out last year when I was eligible - they are considering that as a "request" for payment however/whenever they decide to give it to me?  At this point, I separated from the company nearly 4 years ago, and just want to roll this $$ into my IRA so they no longer have control of it..

Thanks for any help!

Assuming your description is accurate I don't see how they are stopping the payment.

Your payment last year was a distribution and not a DIVERSIFICATION payment correct?  The way to tell is the payment was because you left the firm not because you turned age 55 and have 10 Years of Participation- and was most likely for 25% of your shares.   Correct terms matter here.   If it was a diversification payment we need to know that as the advice below would change.  I ask because you said they paid you 1/4th and not 1/5th.   A distribution installments tend to be over 5 years.   So once again was it a diversification or termination payment?   Not getting another payment in 2020 could be correct if a diversification payment. 

I would start by asking for the following documents if you don't have them already:

1) Summary Plan Description.  (SPD)

2) Copy of their distribution policy.

ESOPs have more discretion when it comes to distributions than just about any other type of retirement plan in terms of making people wait, take installments.... but no they can't just decide to pay or not pay a person on an ad hoc basis.  

Once you get those forms read how they describe distributions ought to work and see if they are following the terms as spelled out in those documents or not.  If you think they aren't doing so I would go back to the company.  They aren't allowed to simply dump all the decisions on the "company running the plan" as most likely the company running the plan is merely following the instructions of the company.  

If that doesn't work come back here and we can start to give you guidance now how to start the press the issue.   I would not run off and lawyer up as your first choice.   That will cause the plan and the company to lawyer up.  It will simply slow things down and increase your costs.  The are other steps like making a formal claim for benefits- the process is outlined in the SPD which is another good reason to get a copy.  And ways to have the DOL make inquires on your behalf that are less inflammatory than a lawyer.  Remember the point is to get paid not get revenge or hurt them with a lawyer. 

I agree with the ESOP Guy, it sounds like you are receiving a diversification and not a distribution due to your termination.  If it is a distribution due to your termination, you would only not be eligible for a distribution if Company is prohibited to honor the put option due to state law.   

Hello!  And thank you!  The payment was not a diversification.  I am not yet 55...  It was a requested distribution (or part of one - as I had requested a 100% distribution of the full $425K - but received a payout near $150K - and then with stock increase my balance is back up to $305K).  

I terminated employment in the end of 2016, but had worked enough hours that I had to wait for the 2017 valuation of stock - which I did not receive until July 2018.  The could not take disbursement for another year (have to be separated from the company 1 full fiscal/plan year).  Finally in July 2019, I was able to request a distribution.  I had requested a percentage (dollar value) in cash, and the balance rolled over into an IRA.  I never received any explanation as to why they chose to do so - but they paid out LESS than I requested in cash - and rolled over the balance of the amount they CHOSE to pay out into my IRA...  So Starting balance was $425k. Requested 50K in cash, and balance to roll into my IRA.  (Just for round numbers...) They distributed a total of $130K...  40k in cash, and whatever was left after taxes (~70k) into my IRA...

Stock values went up, and I now have 305K - and am being told that the ESOP Trust "may have decided" that I am not eligible to request disbursement this year...  As the request period has opened up and is only open for another ~ 15 days...  I understand many of the ins and outs, stock valuation, vesting schedules, etc. with regard to an ESOP - and I know that it is their choice whether to pay out what I request or whatever they choose to pay out (which may be nothing this year)...  and that they technically have 5 years to finish paying once they have begun paying me out.  But as far as my understanding, they do not get to "decide" if I am "eligible" to make the request.. They can deny the request itself and pay it out in a different year - but can they deny me the right to make the request?

The company is 100% Employee Owned S Corp... so I cannot say I am going to sell my stocks elsewhere...

I know it seems silly - but that is what I am being told...  It may be evident as to why I am trying to take my dollars and SCRAM outta here with this company!  I am very grateful for the ESOP program itself and the $$ I was able to accrue over my 17 years there...  But for goodness sake, I just want to get paid out and be done with these people already!!!

Thank you!!

I am not trying to be mean here but what you are describing doesn't make sense.  

I would go back to the advice in my first comment and get the SPD and distribution policy.    These have to give you a summary of how people are going to be paid.  

Once again ESOPs have a lot of discretion on how people are paid out but it can't be arbitrary.   And no I don't think I have seen an ESOP that allows them to determine year by year to simply turn a person's distributions on or off.  

Nor have I really ever seen a plan that doesn't respect a person's wishes on how much that goes to an IRA vs paid to them.  

Just curious how do you know the window to make a request is only open for another 15 days?   It sounds like they haven't sent you are any forms to make a distribution request.  If they have complete them and get them in on time.  

I would see if you can get someone at HR to either explain or help you.   The company does have some obligation to help you get your benefits.  

Your next step if you want to escalate the situation would be to file a formal benefit claim.  The SPD will have instructions on how to do that.  They are required by law to make a formal determination and written reply to such a claim.  They can still say "no" but they have to put into writing the why.

Next is:

If you really feel you are getting no where you might want to enlist the DOL for help.  They have these people called Benefit Advisors.  They will sometimes reach out the company and make an inquiry about the situation.  The great thing about it is they aren't a DOL auditor so the company is less likely to lawyer up and really dig in.  However, that is always a risk as some people will simply hear, "I am from the DOL". 

But if you really want to go that route here is the link to the DOL website to start the process.

https://www.askebsa.dol.gov/WebIntake/

I am not 100% sure what more to say.   Like I said the description given doesn't make sense.  There is a break down in communication or understanding some place in my opinion. 

I appreciate your advice, and I agree that the whole thing doesn’t make sense.

if I call HR, I am told to contact Principal, the company who handles the disbursements and mails the paperwork... I know the window closes in 15 days because I contacted someone I formerly worked with, who DID RECEIVE their paperwork to request a disbursement. I have not received mine. When I called Principal I was told that the company may have elected to not allow me eligibility to request one this year... And that it could take them 7-10 days to get back to me.... 

So therein lies my confusion. Clearly, another phone call is necessary to figure out what is going on.

i appreciate your assistance. At least you have been able to convince me to dig further and get answers... because there is definitely a communication issue!!

Please let us know if this gets resolved and how.  

I wanted to provide an update that I finally received this morning;

The ESOP Trust in this case decided to only open the eligibility to people who were REQUIRED to be paid out this year (5th year of separation from the company or various other reasons - I am only in my 4th year of separation) due to the pandemic.  So technically - I was not eligible to make the request (which again is silly since they have the right to honor or deny it to begin with).  

The fact that it took me over 2 weeks to track down this information, the company who manages the plan did not have the information and i had to go back to my former employer to get it is still unfortunate.

The fact that I am not eligible to take a disbursement - and not eligible to take advantage of the tax breaks that are being offered to people due to COVID - is a complete disappointment.. but at the very least - now I know why.

I did suggest that going forward, they send out something (like they were able to send me via email this morning) explaining this in layman's terms to the participants of the plan (as many of them are ESL speaking....) to potentially avoid the anxiety I have been going through for quite some time.

I appreciate your time and responses - and however disappointed - at least now I understand the situation.

Here's to hoping I don't have to do this again next year...