If you are a participant in an Employer Stock Ownership Plan (“ESOP”) that your Employer offers, then you probably have a few questions about your rights and benefits as a participant.
How do I learn more about the ESOP Plan I am in?
As a participant in the ESOP you are entitled to the same information that ERISA entitles to participants of other retirement plans. Specifically you are entitled to a “Summary Plan Description”, “Annual Statement” regarding your accounts status, a “Summary Annual Report”, Plan Documents and Trust Documents. However, in many cases, you, as the participant must take the initiative to request a copy of this information. Additionally, it is important for participants to be educated and informed on the information provided in these documents, as many of these documents can provide time sensitive material and/or financial status updates of your ESOP.
How do I “cash-out” or redeem my ESOP shares that have been allocated to me in the past?
Generally, you may only redeem your ESOP shares if you terminate employment, retire, die, or become disabled. Your distribution amount will most likely depend on your vesting, and vesting represents the proportion of shares you earn each year that you work for the company. Generally a participant becomes fully vested after 1 to 6 years of employment, depending on your Plan’s elections. Additionally, your Plan has the option to pay the value of your shares at termination, in a lump sum payment, or in equal annual payments, if your account total is over a pre-set dollar amount.
I didn’t get any share allocation this year, should I be worried, or did my Employer make a mistake?
Allocations or Contributions are generally at the discretion of your Employer each year. Refer to your Plan’s Summary Plan Description and Plan Document to verify if Allocations/Contributions are discretionary.
I overheard some ex-coworkers say that they were paid 100% of their 401(k) accounts because they were part of a large group that was laid off during the year. If I was also terminated and only had an ESOP account, should I be 100% vested as well?
Generally, if you were laid off from employment along with a large group of other workers, then your plan may have incurred a partial plan termination. See blog topic “Partial Plan Termination” authored by Jonathan Poppel, CPA on June 30, 2009, for more information on Partial Plan Terminations. If a Partial Plan Termination did occur, and you were part of the group affected by the lay-offs, then you will be automatically vested in your ESOP accounts at 100%, and thus are entitled to the full value of your account.
Are you a Plan Administrator for an ESOP Plan and you are not sure how to answer the above questions for your Plan participants?
Give us a call, reply to this blog, or send an e-mail with your questions.