In Hoffman v. Tharaldson Motels Inc. Employee Stock Ownership Plan, D.N.D., No. 3:08-cv-109, 2/26/10, a U.S. District Court for the District of North Dakota found that a plan amendment providing for the conversion of stock to cash for the ESOP accounts of terminated participants (a.k.a. Segregation of Accounts) was not a violation of the anti-cutback provisions of IRC Section 411(d)(6)(C) - Minimum vesting standards - Special rules - Accrued benefit not to be decreased by amendment.
Forcing Terminated Participants out of Company Stock no ERISA Violation discusses the findings:
Chief Judge Ralph R. Erickson said in his opinion that an employer offering a plan which provides terminating participants a single sum distribution in employer stock "may modify the plan to provide the equivalent distribution in cash without violation of the anti-cutback provisions" of ERISA.
According to Erickson, the finding is supported by the comments at the time the regulations were under consideration by the Department of the Treasury, which note that it has become easier for individuals to replicate the various payment choices available from qualified plans through other means, such as a rollover to an IRA, and that requiring a plan to continue to offer all existing payment options – such as keeping company stock in the plan - "often imposes significant administrative burdens that are disproportionate to any corresponding benefit to [plan] participants."
Finally, Erickson said the expectation of the plaintiffs, that the TMI stock would increase in value should TMI be sold, is not an accrued benefit, but rather an expectation not covered by the anti-cutback rule. "The 2006 Amendment is permitted by law and the cash out option to departing employees protected their accrued benefits under the Plan," Erickson concluded.
While many ESOP practitioners feel that account segregation is legal, the ESOP community is still waiting for clarification of the IRS Position on Segregation Plan Provisions.
0 comments:
Post a Comment