Amending ESOPs to Reduce the Risk of Wealth Losses for Participants

Based on this analysis, the authors' offer a simple proposal to modify employee stock ownership plan rules that would reduce the risk to terminated participants who experience low account balances in these situations. Based on these findings, we offer a recommendation for a plan design change t...

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Bibliographic Details
Published in:Journal of pension benefits 2024-04, Vol.31 (3), p.16-21
Main Authors: Ritter, Beth M, Clark, Robert L
Format: Article
Language:English
Subjects:
C corporations
COVID-19
Employee stock ownership plans
Employers
ESOP
Fair market value
Hospitality industry
Lump sum distributions
Pandemics
Retirement plans
Stockholders
Valuation
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Summary:Based on this analysis, the authors' offer a simple proposal to modify employee stock ownership plan rules that would reduce the risk to terminated participants who experience low account balances in these situations. Based on these findings, we offer a recommendation for a plan design change that offers an effective solution for plans to avoid similar negative impacts to plan participants. Basic Structure of ESOPs An ESOP is a type of defined contribution retirement plan that is designed to invest primarily in employer stock and meets the requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (Code) of 1986. According to Code Section 409(o)(l)(A), the distribution of the participant's account balance in the plan will commence not later than 1 year after the close of the plan year- (i) in which the participant separates from ser-vice by reason of the attainment of normal retirement age under the plan, disability, or death, or (ii) which is the 5 th plan year following the plan year in which the participant otherwise separates from service, except that this clause shall not apply if the participant is reemployed by the employer before distribution is required to begin under this claused [Pratt, D. A., "Focus on . .
ISSN:1069-4064