Employee Benefit Plan: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

ESOP Participant Frequently Asked Questions

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. 

Victor Fuentes

Comments

  1. Chastity says:

    I was fully vested in my company after 1 year. After 5 years and 9 months with the company I left. It has since been 1 year and 1 month since I left and I have seen no distributions. In the paperwork they recently sent with the yearly statement, I was reading that I have a six year wait period from the time I terminated my employment. I left because of multiple reasons, mainly HR issues and constant back-and-forth on policies, including hostility. From the time I enrolled in the ESOP plan, other employees that terminated, told me they received their payments within a year. A couple of years ago they changed from an ESOP to a KSOP. I have yet to figure out what the difference is, or why I have to wait six years when my shares only total $2400.

    • admin says:

      Chastity – First in regards to an ESOP vs. a KSOP – An ESOP is a retirement plan in which an employee’s employer will contribute to an account in the employees name, shares of company stock. The shares contributed can be based on a couple different factors, but are typically based on the employees compensation for a given year. A KSOP is a combination of an ESOP and a typical 401(k) Plan. Accordingly, a typical (although not always)KSOP plan will allow employees to contribute pre-tax dollars to their personal retirement account. Then the Employer will make a matching contribution, typically in the form of Employer Stock, based on that employees matching contribution. Basically, a KSOP allows for more diversification than a standard ESOP, in which a person’s only investment is the Company Stock.

      As far as why you now have to wait six years, I can not speak too. It is possible that the payout rights under the ESOP were more favorable than the payout terms under the KSOP. I would recommend you reach out to your former Employer requesting them to explain the 6 year wait period, and to provide you a summary plan description to support their claims. Thanks for reading the blog.

      Victor Fuentes

    • alan says:

      Hi my employers esop states 1000 hours is needed for the year to count towards vesting. I worked over the 1000 hours and had to leave this employer. My question is that shouldn’t I get the yearly profit share check they pass out to employees to avoid inflation of stock price?

    • admin says:

      Alan –

      Thank you for your question. A participant would need to review his or her plan document to determine what the requirements are for receiving an annual profit share check. Certain plans require that the employee be employed as of the last day of the Plan’s year-end in which the profit share is generated to be entitled to the profit share. If you have any questions, reach out to the Plan Administrator for your plan to obtain a copy of the plan document and ascertain the requirements for a profit share check.

      Kevin Bach, CPA, CVA

    • Damon says:

      Hi.my company went esop in ’08.every year it went up til it hit 15000+ in 2012.then in 2013 it said $0.i obviously don’t have the knowledge I need to understand the whole esop deal. But the company has been rumored to being sold for a while, so I’m wondering if the esop balances have literally disappeared or are the in some kind of holding til sale is final.

    • admin says:

      Damon –

      Thank you for your question and interest in our blog. I would recommend going to the DOL’s EFAST filing system (http://www.efast.dol.gov/welcome.html) and reviewing the statements for the ESOP to determine what the investment balance is and what activity has happened over time.

      Kevin C. Bach, CPA, CVA

    • Rick says:

      I was just terminated and was told that I would not receive my payout for 5 years. I am currently 60 percent vested, if I get paid out in 5 years should I be considered 100 percent vested and should I be paid according to todays value or the value it is worth when they pay me.
      Thanks

    • admin says:

      Rick –

      Thanks for the question and interest in our blog. You would need to review the ESOP’s Plan Document, but typically you only get vested for the period of time that you are an employee of the company, thus the vesting would not change. Typically you get paid out at the current share price.

      Kevin C. Bach, CPA, CVA

    • Ed Brown says:

      I am 57 years old and diversified my esop two times, now. Each time I requested the maximum of 25%. The first election provided a large distribution, and the second one provided a much smaller distribution reflecting only the increase in the value of the stock, plus additional shares that were added by the company. So far, so good. My question: What now happens if the value of the stock goes down at the next valuation? Will I need to reimburse money to the plan to maintain the 25% diversification?

    • admin says:

      Ed –

      Thank you for your question and interest in our blog. We are not aware of a rule requiring reimbursement to the Plan.

      Kevin Bach, CPA, CVA

  2. Lisa Grecco says:

    Our ESOP has always paid out a lump sum when an employee leaves the company.

    The company’s ESOP plan does contain provisions for a 5 year installment of distributions.

    An employee was terminated. A few months after this termination he received his ESOP statement indicating how many shares were in his account.

    He was instructed by a member of the ESOP committee (and also the company’s benefit/plan administrator) to come to the company’s office to sign the required document for the ESOP payout.

    Three forms were presented to the terminated employee and signed:

    1. “Participant election & Authorization Form”
    Completed and signed by ex-employee. (No section for company/ ESOP representative to sign.)
    Form indicated a direct rollover to an IRA.

    2. “Distribution Consent Form”
    Completed and signed by ex-employee and signed by company/ ESOP representative.
    Form indicated to receive payment prior to normal retirement age.

    3. “Stock Power Form”
    Completed and signed by ex-employee. (No section for company/ ESOP representative to sign.)
    Form indicates that ALL the ex-employee’s ESOP shares (actual number of shares listed on form) were to be transferred to the company.

    (Form read as follows: “FOR VALUE RECEIVED, the undersigned hereby, sell, assign, and transfer unto” the Company. )

    The form also indicated the following: “The undersigned hereby irrevocably constitute and appoints the Secretary of the Corporation as attorney to transfer the said stock on the books within named Corporation with full power of substitution in the premises.”

    These completed forms were left with the company’s benefit/plan administrator and ESOP committee member.

    Copies were given to the ex-employee.

    Six weeks after these forms were completed the company has amended the ESOP’s distribution policy.

    The ex-employee is no longer being offered the lump sum payout and is only being offered a 5 year distribution payout. (Note: No form of payout has actually occurred.)

    The ex-employee is being requested to complete the same 3 forms again, this time indicating a 5 year distribution.

    The ex-employee contests that he has already sold ALL of his ESOP stock to the corporation is expecting his lump sum distribution.

    Is the company required to pay this ex-employee his lump sum distribution?

    Thank you for your time and any help you can provide.

    Lisa

    • admin says:

      Hello Lisa,

      This is a very good question. My assumption is that the company changed from a lump sum only payout option to a 5 year payout option to limit their exposure to having to pay out significant cash flows in a given year. For example, if persons with highly valued ESOP accounts are close to retirement age, then the company could be exposed to having to pay out a large amount of cash in a single year.

      Given that, this amendment they enacted during the plan year, could have been signed and made to be “effective” retrospectively to the beginning of the plan year. For example, if they signed the amendment August 1, 2013, they could have said the “amendment for 5 year pay-out” will be deemed effective as of January 1, 2013, which would negate any documents signed by participants from January 1, 2013 to July 31 in which they requested a lump-sum distribution.

      However, this is my assumption only, and I would say that the employee has a strong case to request their lump sum, regardless of whether or not the amendment was enacted retrospectively. I would recommend this employee obtain legal counsel, preferably an attorney who specializes in retirement plan law, typically called ERISA attorneys.

      Thank you for your question,

      Victor L. Fuentes

  3. Juan says:

    Hello Victor
    I have read all of the post and answers regarding ESOP participants. I am a former employee that was laid off approxitemely 7 yrs. Ago. My former employer made me wait for 6 yrs. Before my first distribution. I am now waiting for my second distribution, The company made me sign a waiting period of 30 days before I can receive it. I am how on 35 days and the company is now telling me that my distribution for this year is on hold due to the accounting department not having money to pay me and other participants. I have contacted the HR dept. The chairman and accounting dept. For answers, It seems that they all are trying to avoid speaking to us. My question is .sn I sue the company and get all my shares rolled over to my IRA ? What and who can I contact regarding this issue? I honestly believe we have being told lies and they have done us wrong since the beginning by having us wait for 6 yrs. I would really appreciate any advice.

    • admin says:

      Hi Juan,

      The below link will take you to the Department of Labor’s website that will discuss the process for filing a distribution claim from your plan. There are some specific paths that the Department recommends, as outlined in this link. For a quicker response, you could contact an “ERISA attorney” who would be able to tell inform you of your specific rights and actually file a claim on your behalf. ERISA attorney’s are specialized in the Employee Benefit Plan laws and regulations. http://www.dol.gov/ebsa/publications/Filingretirementclaim.html

      Victor Fuentes

  4. Ed P. says:

    Hi, I worked for almost 9 years until I was laid off along with another 10-20 employees. I was 100% vested with about 17 to 18k on my Esop. My question is, will I have to pay 10% penalty on top of the 20% for federal taxes? I’m 36 yo. To be honest I find ridiculous paying a penalty on top of taxes, for I could use $1800 of penalty now instead of waiting 30 years till I’m retired. I mean, it doesn’t make sense. A person can be homeless in a month, fall behind in payments… So why punish people for being forced to take money out of necessity? Know what I mean? Btw, I was laid off in late 2011 and they say they will give me a distribution in May 2013.
    Thank you for your attention.

    • admin says:

      Ed –

      Please see link following: http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics—Tax-on-Early-Distributions
      It appears there are some exceptions to the 10% rule as detailed by the IRS guidance. I know the penalty seems to be a punishment, and I cannot speak for the IRS, but I am assuming their reasoning is: Retirement plans were set up so that persons would have retirement funds available when they retire (generally ~60yrs of age); and the IRS has enticed this savings by allowing the money to accumulate tax free, and in order to discourage/penalize persons from using retirement plan funds as a bank account they add in the 10% penalty.

      Victor Fuentes

  5. Chris Nickas says:

    I’m 100% vested ESOP Sub Chapter S and concerned that the profits of our company are being sipponed off by our ESOP committee and Board with are all the same people. The board will not provide financials or tell us who the other participants in the ESOP are and who is receiving bonuses and profit sharing. I suspect that they have also placed family members who do not for the company on the payroll. How can I stop this?

    • admin says:

      Chris,

      I can only speak to the ESOP side of your question. The Plan administrators are only obligated to provide you with your personal statements (i.e. your account balance) of the Plan, and a summary of the Plan’s overall financial condition. Unless specified in your Summary Plan Description (a document they should have provided when you became a participant), they are not required to provide you with financial statements of the company. Additionally, they are not required to provide you with detail of who else is a member of the plan, and who is receiving bonuses.

      Victor Fuentes

  6. Joseph Gonzalez says:

    I left my former employer in 2006 my esop was 13,000 and change they have been giving me a yearly distribution since then of around 2000 is there any way to get the rest in just one lump sum payment?

    • admin says:

      Joseph –

      Thank you for your question. You should ask for the Plan’s “Summary Plan Description”, which should specify the Participants rights in receiving benefit payments. From my understanding of most ESOP Plans, they “generally” have the right to spread out benefit payments for accounts greater than $10K, over a span of 5 – 8 years. Which, since you had $13K, I am assuming your Plan had a clause that stated they could spread out your payments. I agree it does not seem fair to the person receiving benefits; however the Plan has this right in order to protect itself in case many people left the company at the same time, and they wouldn’t be stuck with the burden of having to pay out $100k’s of dollars in one year.

      Victor Fuentes

  7. jason stern says:

    To whom it may concern, I was employed by my employer for 3 years. It’s an ESOP company. The company got sold in Sept. 2012 and I was terinated in Dec. 2012. When the sale was complete everyone was told and got documents that said that we all were now 100% vested and will be getting a distribution or rollover option. My company told me verbally my account balance. When I received it after being terminated, the acct. balance decreased significantly. Do you think there is some foul play and what is your advice? What should I do first. I strongly believe that I’m being wronged!

    Please help

    • admin says:

      Jason –

      Thank you for your question. My advice would be to ask for a participant statement of your account balance for the 2011 year and 2012 Plan year. They may even have quarterly statements, but more than likely they will only have yearly statements. From the statements you should be able to identify how/why the value of your account decreased significantly. For MOST ESOP’s the main investment for the ESOP Plan is the stock of the Employer. Accordingly, if the value of your Company’s stock decreased significantly, than your account balance would have decreased significantly too.

      Victor L. Fuentes

  8. Dewey says:

    In 2008 I quit my job with a company that has a closely held ESOP plan that begins payouts 5 years after termination. After 1 year I was told I was not welcome at the annual stockholder’s meeting because I was not a current employee. Two questions: (1) Can they legally exclude me from the stockholder’s meetings? and, (2) Am I entitled to copies of annual financial statements other than the form (5500?) they must provide to the DOL?

    • admin says:

      Hello Dewey,

      1) I am not technically qualified to speak to the legality of the Company’s actions/comments. I can say that if you were a participant of the Plan, and depending on the ESOP Plan Document, then there may be certain situations, whereby you (a shareholder) should have been given an option to vote on an issue. There are specific issues (approval/disapproval of a corporate merger or consolidation, liquidation, dissolution, etc), which ESOP holders can vote on, and the specific ones may vary from state to state, depending on state law. If the annual stockholder’s meeting did not discuss such issues, and depending on state laws, then the Company more than likely had the right to not invite any ESOP shareholders.
      2) I would first check the Department of Labor’s 5500 filing website http://www.efast.dol.gov/portal/app/disseminate?execution=e1s1 . You should be able to find your prior Employer’s form 5500 here. If the Company qualifies as a large filer, than they must include the ESOP plans audited financial statements. Other than the financial information applicable to the ESOP itself, I do not know of any rights an ESOP participant has to obtain the Company’s financial statements.

      Victor Fuentes

    • robert says:

      i was terminated in march 2012 i have $ 145,000 in an esop plan how do i cash out part of my money and roll some into an ira

    • admin says:

      Robert –

      Thank you for your question. I recommend you talk to your Plan’s ESOP Administrator for what specific options are available under your Plan. All Plan’s are different in regards to when you can cash out from the Plan. They also may offer different roll-over methods. The Administrator of your Plan should be able to provide you with the forms you need to do both (partial cash out and rollover).

      Victor Fuentes

  9. Wilson Trabal says:

    Hello Victor,
    I was laid off from a company I worked for. I became fully vested a few months prior to the lay off. Is it normal practice for the company to require you to have been away from the company for say 5-6 years before you get your payoff? I put monies in for 5 yrs, they lay me, as well as a few all the other guys in my dept and now we have to wait an additional 5 yrs to see any return?

    • admin says:

      Hello Wilson,

      From the question, I cannot tell what type of retirement plan(s) you were part of from your comments above. Generally, if you put money in the Company, then you should be entitled to your contributions relatively quickly after being laid off. If you were a member of an ESOP, then they may have the right to not pay for several years, depending on how much money was in your account, that the Company contributed. The best advice I could give ,would be to request a “Summary Plan Description” from your prior employer’s Human Resource Department, and the Summary Plan Description should provide additional details on your Cash Distribution Rights and Procedures.

      Victor Fuentes

  10. Andy says:

    This is a great conversation…

    I left my company over a year ago and have just over the $5,000 threshold for a full disbursement. According to the company’s ESOP Plan Description, if you are over the $5,000 threshold then the company does not start paying you out until 5 years after your terminate employment and can take an additional 5 years to pay you out.

    Is there any way to speed this process up?

    • admin says:

      Hello Andy,

      My advice would be to right a letter to your former emplyer’s human resource department requesting your funds, and asking for a specific reason for why they are declining the pay-out. They should provide a reference to the Plan Description. From my experience, many ESOP’s will build in various “waiting” requirements, whereby a former employee will have to wait a number of years after termination to receive their total payout. The reason the ESOP’s can do this is to protect them from having to pay out a significant amount of money all at once, in the case that many employees were to leave the company at once, and then demand their money.

      Victor Fuentes

  11. Stephanie says:

    Hi victor, a couple of Questions for you…..

    What types of companies/markets generally do better with ESOP’s?

    What are the key criteria for valuation?

    How Long have ESOP’s been around?

    thank you!!!!

    • admin says:

      Stephanie,

      Thank you for your inquiry. Below are my responses. If you have any questions, please feel free to contact me victorf@hhcpa.com

      1) What types of companies/markets generally do better with ESOP’s?
      Generally speaking, any company/market can create an ESOP, as long as the company offers shares (i.e. C Corporation or S corporation). The majority of ESOP’s are created for one of two purposes, 1) to provide the owner(s) of a closely held company with the opportunity to sale his/her shares to another company/entity, usually with tax advantages/incentives, and 2) to set up an employee incentive plan, whereby employees who receive shares of stock of the company are more likely to be honest, loyal, dedicated, have better morale towards their owners, etc, as they consider their own actions to have a direct consequence on the performance of the company. As the company performs better, the price of the company’s shares increases, and so does that employee/shareholders personnel wealth.
      Additionally, if the company does not project that the company’s profitability will increase over the years, than an ESOP may not be the best idea. Additionally, if the employee base consists of a group of employees who would receive significant share allocations, and all retire/quit about the same time, then the company could be stuck having to pay out a significant amount of money when these persons retire, as the ESOP is required to repurchase shares from retiring/terminated employees.
      2) What are the key criteria for valuation?
      This question is outside the scope of my “auditor expertise”. However, I do know for a company interested in creating an ESOP a valuation (or multiple valuations) must be performed. Many factors, including historical cash flows, future expected cash flows, historical financial statements/results, and forecasted financial statements will be utilized in preparation of the valuation.
      3) How Long have ESOP’s been around?
      I am not exactly sure, but for at least 35 years.

  12. Agripino Legarte says:

    I am 100% vested. I was terminated from employment August 8, 2010. Last plan year closed 01/31/2012. My ESOP document says “Distribution of your Company Stock Account and Other Investments Account shall commence as soon as administratively feasible after the close of the Plan Year in which you incur a one-year Break in Service”.

    I requested distribution (cash-out) of my benefit but my former employer’s response was: “nothing can be done prior to the year-end evaluation and tax return, both are not yet completed. Once they are done then the documentation will be submitted to all participants”.

    Please advise my rights and next step i have to take.

    • admin says:

      Thank you for your question. You should ask your former employer to provide estimated “dates” of when they expect to have the year-end valuation done and tax return completed, and when they expect to have the distribution forms to you. They may not be able to give you exact dates, but they should be able to give you a “range”.

      Also, if they are talking about the 1/31/2012 tax return for the ESOP plan year that closed on 1/31/2012, then they should have until 11/15/2012 to complete the Plan’s tax return, in which you would be given the distribution forms sometime shortly thereafter. I believe they have to provide the IRS 1099 (Plan distribution details) by about 1/31/2013. This means that they would have to have all distributions (checks) out to terminated employees by mid to late January 2013.

      If they do not provide you with estimated dates and you believe your distribution request was handled improperly, then they should have a section in your ESOP document which tells you how to write a formal complaint.

      Let me know if you have any further questions,

      Victor Fuentes

  13. David says:

    Hi,

    My employer normally pays out one calender year after year of termination. This is not written in the plan but has been normal practice since beginning. Plan list what is required by IRS which is maximum time. After I left I filed a lawsuit against the administrator and company and settled. I believe he is retaliating for the suit by not paying me out until law requires. What can I do? Do I have recourse?

    Thanks

    • admin says:

      David, first thank you for your question. Unfortunately, I am not qualified to provide any legal advice for this issue. What I can offer is some suggestions, as follows:

      The IRS and the Department of Labor (DOL) share jurisdiction over some ESOP features. The DOL provides for a specific process in filing a claim for your retirement benefits and explains in detail on what documentation you should request, maintain records of, and the timelines that your former Employer’s Administration has to review your claim. I have copied the sites web address below.

      http://www.dol.gov/ebsa/publications/Filingretirementclaim.html

      I would also recommend working with the attorney who assisted you in your first claim. If he is not an ERISA attorney, (Employee Retirement Income Security Act), I am sure he could refer you to one. The DOL also recommends seeking legal advice if you would like to challenge the denial in a court of law.

      General thought:
      If it can be proved that the Company’s historical practice was to pay benefits to employees in the year subsequent to their termination, than you may have an argument that the Plan’s historical practice (which may not be in alignment with the Plan document), was effectively an amendment to the Plan document. In which case, they should have paid you your retirement benefits in the year subsequent to your termination.

      I hope you find this information useful. Please let us know if there is anything else we can assist with,

      Sincerely,

      Victor Fuentes

    • Kandi Cook says:

      Question – What happens to the money in your Esop if you are 100% vested before employment terminates due to layoff & they elect to make you wait 6 years before receiving a distribution? Does your balance become frozen until allowed a distribution? Do they continue to subtract costs & fees until you receive your money?

      Example: What if you have $20,000.00 in your Esop & are 100% vested then get laid off. They decide to make you wait 6 years after separation date to receive your money. If you are not allowed to take any money out, are the rules the same for them? Can they continue to deduct fees and/or costs out of your account for that six year period? What if the value of the shares goes down? If your not allowed to withdraw, do you lose money if the value declines? If your balance is worth $20,000.00 when you leave, and 6 years later they say you now have $5,000 because of costs, fees & the stock value has declined – do you have any recourse? Do you have to accept that loss? Are there rules that freeze and protect your stock value? Work in construction has continued to decline since lay off in 2006. The company had over 100 employees in 2006 & now has less than 40 due to decline in new construction. Stock value continues to fall. I can’t get my money until 12/2014. My balance and the value of my stock continues to fall. Out of $23,000 I have less than $ 5,000 right now. Can they do this? At this rate I will have nothing in 2014. It seems like a scam to prevent me from getting my money while they take it away. Is this legal?

    • admin says:

      Hi Kandi,

      I have not heard of an ESOP requiring a 6 year wait period to pay you your balance. I have heard of ESOP’s that can spread out equal payments over 5-6 years, but not making a participant wait 6 years. My best recommendation is to request the Summary Plan Description, which can be provided by the Company and read the section explaining your rights for distributions. If the Summary Plan Description is inconsistent with what you have been told, then you should communicate this to the Company’s HR department. If they do not respond, then I would recommend contacting an attorney who specializes in the Employe Benefit Field. These attorneys are typically called ERISA Attorneys.

      Victor L. Fuentes

  14. admin says:

    Hello Carrie,

    Thank you for your question –

    First, (if not already done so) I recommend you request from your Plan Administrator, a copy of the ESOP’s “Summary Plan Description” which will provide a high-level analysis of your benefit/distribution rights under your ESOP, and you should request the “Plan Document”, which will provide the full details of your benefit/distribution rights. All ESOP’s are slightly different, so it is important to read the specific rights of your ESOP.

    ESOP’s generally wait until after the end of the Company’s “Year end”, to have an independent valuation expert value the Company’s stock. Accordingly, a terminated employee will have to at least wait a few months after the beginning of the year, following the year they were terminated from employment, to receive a benefit. For example, you mentioned you were terminated in 2011, so you would not receive any benefit until at least April 1, 2012.

    Additionally, if you have an account balance in excess of $10,000 most ESOP’s have the right to provide for equal payments of 5 years. The payments may be made for more than 5 years if you have a balance over $850,000.

    In some cases, if your ESOP plan had to take a loan out to buy the Company Stock (which it has allocated to employees), sometimes the ESOP can withhold payment for terminated employees, until after the loan has been repaid.

    Without reading the Plan Document or Summary Plan Description of your ESOP, I cannot determine why the 5 year hold was put in place, as this is not a typical issue I see in ESOPs. Again, I would recommend you read the Plan Document and Summary Plan Description to identify your rights under the ESOP. If you have already read these documents, you can requests a distribution request form, and try to request the money be paid to you. There are certain processes that every Plan must follow when a claim has been requested by an employee (including advising the specific reasons why claim has been denied). See chapter 6 on the Department of Labor’s website for benefit claims process rules.– http://www.dol.gov/ebsa/publications/wyskapr.html#chapter6

    Thank you,

    Victor Fuentes

  15. admin says:

    Hello Bill,

    Thank you for your comments and questions.

    Initial valuation
    At the end of each plan year, the Plan should obtain an independent third party Valuation expert to determine value of Company as of the Company year end. The Plan Administrator is required to give employees an individual account statement as of the Plan year end, which would contain the valuation of the Company. In regards to the valuation reports themselves, this may be more difficult to obtain, as most of the valuation reports are directed to and for the use of the Plan Administrators themselves, and not the employees of the Company. It is the Plan Administrators final call as to what the value of the ESOP stock is worth, however almost always the value provided by the independent valuation expert is used. In regards to initial valuation, I did not find any requirements that the Plan Administrator or Company had to provide this information to employees. There are laws that prohibit the Plan from paying more than fair value for the company shares. Accordingly, if you obtain a copy of the Plan’s financial statements, (better yet, the Plan’s audited financial statements) you can derive the initial value of the stock by dividing the total Loan $ that the Plan had to spend for the shares, by the total number of shares purchased.

    Regarding on-going financials – Generally every ESOP is required to provide a participating ESOP employee with an account statement customized for that employee’s ESOP account, including such information as “account $ balance, vested benefits”.

    Generally every ESOP is required by law to provide Form 5500 annual reports when the employee makes a written request to the Plan administrator for such information. You can talk to your human resource department to help identify who the Plan administrator is for your company’s ESOP, if not already known. However, the Plan generally has 9 months after the Plan year end, or 2 months after the annual report filing deadline to provide such information.

    Additionally, you can visit the Department of Labor’s website to search for your Company’s ESOP and other Benefit Plan financial statement filings. (www.efast.dol.gov/welcome.html). “Form5500/Form5500-SF Search”. Note – the search input data is very specific, so you may have to try several variations of your company’s name, if it does not pop up the first time.

    Victor Fuentes

  16. bill says:

    hi victor, great post.

    we have just started a new esop and i was wondering what type of financial documents we are allowed to request. for example, can we request initial valuation as well as ongoing financials?

    thanks,

    bill

  17. carrie says:

    i was terminated in 2011 . i have 100,000. in esop? i was not given the option to cash out. ive been told its rolling over to IRA next month, but i cannot access for 5 years. Why? Is there ways around this?