ERISA Law Difficult for the Average Person

Phoenix, AZEmployee stock options are one way that companies can provide extra benefits to their employees. Many employees are part of some sort of employee savings plan or employee stock plan, which they believe will help to provide for their future. However, the rules and regulations that guide employee stock option plans (ESOPs) can be complicated, and when the average person has a concern about how the plan is run, he or she may find that it is difficult to get a straight answer.

Jacob P. (not his real name) is trying to determine whether or not he should be legally able to have access to his ESOP money sooner than the company wants him to have it. He says that the way he reads the Internal Revenue Code (IRC) as it relates to ESOPs, he should have already had access to his money, but his company says that is not the case. They are holding onto his ESOP, saying that according to ERISA they have that right. However, their actions are putting Jacob under financial strain.

Jacob was laid off from his company in August, 2008, after several years of employment. He says he did not sign anything in his exit interview because he did not want to agree to anything.

"I was told by HR [human resources] that the evaluation of funds would be at the planned year-end, which was the end of January, 2009. However, that process takes 2 to 3 months. If you are still an employee at that time, you get a stock certificate, which would show you what your stocks are worth. If you are no longer employed, you have the option of rolling it over into an IRA. But, that would take probably until the end of July, which is 6 months past the evaluation at the planned year-end [and almost a year after Jacob was laid off]. I just wanted to speed up that process and have them roll over the money into an IRA to have access to it and do what I need to do."

Jacob says that he has approximately $125,000 in his ESOP—money to which he would really like to have access. Since being laid off, he has decided to start his own company, and that $125,000 would provide him with a cushion so he does not have to worry about finances.

"I'm facing the possibility of foreclosing on 2 rental properties and I'm close to being put out of my primary residence. It's affected me financially—it's a big hardship. I don't even know if I might be filing bankruptcy because of it. I was employed all my life and have never been in this situation before. To have a company have a hold over me and not be able to provide for my family as I should be able to between jobs—I think it's just wrong."

Unfortunately, ERISA law and the Internal Revenue Code (IRC), as it relates to ESOPs, are complicated and difficult for the average person to understand. While Jacob believes he should have had access to his money within 60 days of the year-end, his company says that is not the case. The company says that according to ERISA, they do not have to get him the money in 60 days. Jacob is still trying to work out whether or not he is correct in his reading of the IRC and whether or not his company is correct in its reading of ERISA.

Jacob is certainly not alone in his difficulty with ERISA law. Many people with ESOPs and employee savings plans do not fully understand the plans, ERISA or the IRC. That puts them in a troublesome position when it comes to protecting their money and their financial future.

"I'm trying to understand the IRC and the way their plan is written," Jacob says. "All I want is my money and I'll leave everybody alone and never talk to them again. I'd love to have an attorney look at my plan and tell me in 10 minutes, 'This is what the plan states'."