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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12672
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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The company that I work for sold itself to a bigger company.

Customer Question

Hello, the company that I work for sold itself to a bigger company. How can I claim my ESOP shares?
JA: The accountant will know how to help. Please tell me more, so we can help you best.
Customer: What do you need to know?
JA: Is there anything else the accountant should be aware of?
Customer: I am not sure. Why did it try to charge me 38?
Submitted: 11 months ago.
Category: Tax
Customer: replied 11 months ago.
I am on the brink of retirement and have worked with the company for 20+ years.
Customer: replied 11 months ago.
Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Expert:  Lane replied 11 months ago.

Hi. looks like no one is picking this up. my names Lane ... I can help here.

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For the most part, you receive ESOP benefits after leaving employment. (Depending on the "plan document," you may NOT be able to get the shares if you haven't left employment ... just becasue your company was purchased)

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The plan administrator MUCH provide this document to participants BY LAW. (Employees Retirement and Security Act - ERISA)

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The basic ESOP rules are as follows:

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The "plan year" is the ESOP's annual reporting period, which may follow the calendar year or be something different like July 1 to June 30. The plan's "normal retirement age" cannot be later than 65 or, if later, the fifth anniversary of plan participation.

  • If you leave because you reached the plan's normal retirement age, become disabled, or die, distributions must begin during the next plan year. This means your distribution could start very soon after you leave or as long as almost two years, depending on the timing.
  • If you leave for some other reason (such as quitting or being terminated), distributions must begin no later than six years after the plan year in which you left
  • The ESOP loan exception, available in C corporations and, according to some interpretations, in S corporations: In both cases above, if you have shares in your account that were bought by a loan the ESOP took out that is still being paid for, the start of distributions on those shares may be delayed until the plan year after the loan is fully repaid. But these distributions must be completed by the later of the plan year after the loan is fully repaid or the date they otherwise would have been completed.

Distributions may be made all at once (a "lump sum") or in substantially equal payments that are made no less frequently over annually over a period of not more than five years. (This means there can be six annual payments, counting the first year.)

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(Again, the plan document will spell out wich of these options the ESOP has chosen to implement)

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The five-year period can be extended for very large balances (an indexed amount currently over $1 million).

Expert:  Lane replied 11 months ago.

Here are some examples of how this can work:

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  • You retire at age 65, the plan's retirement age, in 2022 and the plan year ends December 31. The plan must start distributions to you by sometime in 2023. They must be completed no later than 2028.

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  • You quit in 2022 at age 40 and the plan year ends December 31. The plan could require that you wait as long as until 2028 before starting distributions. They must be completed no later than 2033.

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An ESOP loan exception example:

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  • You quit in 2022 at age 40 as in the above example, but all of the shares in your account were bought by the ESOP with a loan it finishes repaying in 2033. In this case, under the ESOP loan exception, the commencement of distributions can be delayed until 2034, the year after the loan was repaid. However, they cannot be stretched out over five years the way ESOP distributions usually can; here, they must be completed in 2034, which is the later of the year after the loan was repaid (2034) and the year your distributions would be completed absent the ESOP loan exception (2033).
Expert:  Lane replied 11 months ago.

If you'd like my help in getting the Plan Document and examining to see what your options are I'd be glad to help.

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But again, it's the options they've chosen (withing the rules above) that will answer your question

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Let me know if you'd like to discuss. I can make an "additional Services offer here" for the smallest amount possible ($5) and we can talk tomorrow and I can make some calls for you.

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Again they MUST provide the document for all participants.

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Finally, the purchase might or might not be a trigger for distribution.

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Let me know what questions you have from here ... and whether you'd like to discuss further

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Lane

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I have a law degree, (Juris Doctorate), with electives in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986

Customer: replied 11 months ago.
I am 62 and was told that to receive any of the profit from the shares through ESOP I have to retire until I turn 65. Is this true? Also the problem is that the owner sold the company to another company. What happens to the ESOP? I have a total vested amount of $8207.74. Is there any way I can cash out?
Expert:  Lane replied 11 months ago.

So sorry, but yes they can set the retirement age at 65.

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BUT your money is safe. The company is a creditor to the plan under securities Department of Labor Law (specifically that ERISA that I mentioned).

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ESOPS can be MUCH more restrictive than regular run of the mill retirement plans like 401(k)'s.

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Again, only the "plan document," a very specific element of the plan (something you have a legal right to review) can answer that question.

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But it IS possible ... Many times a sale of the company can be a trigger to let employees cash out (but it doesn't have to be).

Expert:  Lane replied 11 months ago.

Please Let me know if you have ANY questions, before rating me. Also let me know oif you'd like some help getting hold of, and examining, the Plan's "plan document."

But if this HAS helped, and you don’t have more questions on this, I’d appreciate a positive rating (by using those stars on your screen, and clicking submit)

Thank you,

Lane

Customer: replied 11 months ago.
Thank you. So even though the company was sold to another company, my ESOP funds are still intact? What should I do to get more specifics on the "plan document"? Should I contact the administrator or trustee of the ESOP account? Should I ask him/her to give me the plan document? Or should I ask if I can with draw my shares?I attached a summary annual report and participant account statement
Expert:  Lane replied 11 months ago.

Yes, they can explain the provisions of the plan ... Looks like you'e 80% vested which means that you already legally own 80% of the values they're showing you.

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What you migh want to do is ask if you can distribute your shares after you are full vested.

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It's even POSSIBLE that you can get the 80% now.

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But for ESOPs the more common scenario would be that you can take after (1) separation from service (no longer working there) or after retirement age (here is sounds like the plan's chosen retirement age is 65).

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But from the statement it looks like you went from 6000+ to 10000+ in one year, you really might just want to let it keep growing.

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How's the company itself doing?

Expert:  Lane replied 11 months ago.

Although EVY is a private Company ... LOOKS like things are going well.

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founded in 1948 and is based in Los Angeles, California with additional offices in New York and Seattle; Puebla, Mexico; and Shanghai, China.

Expert:  Lane replied 11 months ago.

Who bought the company?

Expert:  Lane replied 11 months ago.

See this ... They are referring to the Plan Doc as SPD (Summary Plan Description)

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From here: THE RIGHTS OF ESOP PARTICIPANTS

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"All ESOP sponsors must provide a document to all employees explaining the rules of the ESOP, including how and when they become participants, how and when they get their ESOP benefits distributed to them, how they can take actions to question or complain about ESOP operations, and names and addresses of the sponsor and fiduciaries. All ESOP participants must receive the document within 90 days of becoming a participant, and the SPDs must be updated when material amendments are made, or, if there are none, every five years. The document is supposed to be written so that employees can understand it, but, at the same time, must be comprehensive. In practice, few employees ever read the SPDs and fewer still understand them. Companies should also provide an ESOP handbook that is more basic and that refers to the SPD as the governing source of information."

Expert:  Lane replied 11 months ago.

If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

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But again, let me know if you need more on this.

Lane

Customer: replied 11 months ago.
I never received a document stating how I became a participant, or how or when I get my benefits aside from them verbally telling me that I have to wait until I turn 65. They did not provide any documents whatsoever. They sold the company to Hybrid Apparel. What should I do?
Expert:  Lane replied 11 months ago.

You need to ask for the plan document (summary plan description). Assert your rights under ERISA.

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that's the only way you'll know what's supposed to happen upon sale.

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You might become 100% vested, They may buy you out at fair market value. You may simply continue to be a participant have have money contributed for you, until retirement age.

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Only the plan Doc will provide that information in a way you can trust.