ESOP question

[redraptor]

According to our ESOP I am eligible for a distribution of up to 25% of my shares in cash (about $25k). The rule is over 55 in age and at least 10 years of service for this "eligible diversification" If I choose this I will also be allowed to recieve 20% of accrued shares yearly for the next 4 years and 50% for the final year. 6 years total. Key word is accrued, so the last 5 distibutions will be small.
I'm 57 now so I would have to roll it into some retirement vehicle for the next 2 1/2 years as I want to retire by 60. I cannot redeem the rest of my shares till age 65 and those will be spread over 5 years.
I'm considering this over letting it ride over what happened to my last pension. I cant predict the future. WWYD?

 

[Quattro73]

I would definitely do it. You want the diversification if possible. Do you roll it into an IRA?

I have some accumulated RSU that I am working on getting sold now. Mine is fully in taxable in that situation.

 

[Closet_Gamer]

+1

 

[nobody]

Depends on how strong and open your company is and how much trust you have in them.

The one I was in, I was forced out the year after I left. ESOP I was in was 100% employee owned and outperformed the market in both growth of stock price and dividends, the company gave us cash each year inside of it to to buy stock as it became available.

When I interviewed a few FA's they told me to get out and diversify. When I meet with a FA that had a lot of experience with company diversifying wasn't even discussed.

Every retired employee I talk to, wish they could still be in it, including me.

I retired at 47, the ESOP was half of the reason I was able to.

 

[MRG]

I left money in an ESOP from Megacorp, lost a lot of money due to ridiculous mismanagement. Been in a lawsuit for years trying to get the other 90% they lost. While this isn't a huge deal for me others lost most their retirement.

I'd take the money..

 

[scrabbler1]

How much of the ESOP's value is in NUA (Net Unrealized Appreciation) versus its original (par) value? NUA is taxed at a lower (LTCG) rate versus par value which is taxed as ordinary income (looks like you would avoid any early withdrawal penalties due to your age).

When I cashed out my entire ESOP upon leaving my company back in late 2008, about 97% of its value was NUA, so that was subject to a max LTCG tax rate of 15% (at the time). Only 3% of it was taxed as ordinary income and, for me, subject to the early withdrawal penalty. I still had state taxes and the federal AMT to worry about, though.

This big pile of money (about $300k) was key to my being able to ER. And being able to do a direct rollover from my 401k into an IRA protected that money from being far more heavily taxed had I cashed that out instead.

I had other options for taking staggered distributions of the ESOP money, simlar to those the OP described. But I wanted none of that.

 

[wrigley]

I just had mine transferred over to my 401k

Mike

 

[redraptor]

Depends on how strong and open your company is and how much trust you have in them. .

I trust the 3 people running the show the last 6 years but none have a business owning background. It's a small company (25 people) tied to the steel industry. We notoriously can't keep most delivery dates and since the pandemic with supply chain issues and not being able to hire anyone our ontime is 0%. The schedule runs on which customer is screaming the loudest. Things are still ok now but for how long?

 

[redraptor]

I left money in an ESOP from Megacorp, lost a lot of money due to ridiculous mismanagement. Been in a lawsuit for years trying to get the other 90% they lost. While this isn't a huge deal for me others lost most their retirement.

I'd take the money..

When my plant closed the union had to sue to get us something for our pension. We got 10 cents on the dollar. The other pension is with the PBGC.

 

[redraptor]

How much of the ESOP's value is in NUA (Net Unrealized Appreciation) versus its original (par) value? NUA is taxed at a lower (LTCG) rate versus par value which is taxed as ordinary income (looks like you would avoid any early withdrawal penalties due to your age)..

I'm not sure what some of that means but I was thinking about putting the money in a regular or ROTH IRA for the short term. My long term investments will take time to recover and I would use this money first when the time comes then see what things are like at 62 for SS. Risk isn't an option as I need to have this money to budget our lives.
Thanks everyone for your responces!

 

[cathy63]

I trust the 3 people running the show the last 6 years but none have a business owning background. It's a small company (25 people) tied to the steel industry. We notoriously can't keep most delivery dates and since the pandemic with supply chain issues and not being able to hire anyone our ontime is 0%. The schedule runs on which customer is screaming the loudest. Things are still ok now but for how long?

Get as much out now as you can. I have some money stuck in an ESOP that my former employer started the year I retired. They switched from doing a 401k match to investing in an ESOP instead, with a promise that if we left the company it would pay out in 5 years. Then they borrowed against those funds and changed some of the plan terms, so now the only way to get money out is to wait until the loans are paid off or reach the RMD age (currently 72).

 

[nobody]

I trust the 3 people running the show the last 6 years but none have a business owning background. It's a small company (25 people) tied to the steel industry. We notoriously can't keep most delivery dates and since the pandemic with supply chain issues and not being able to hire anyone our ontime is 0%. The schedule runs on which customer is screaming the loudest. Things are still ok now but for how long?

The ESOP I was in, was with one the top engineering firms in the US, its by far one of the best ESOPs. Given your case I would take it.

 

[DireWolf]

My old employer let me diversify a portion (25%) of my ESOP this year. I rolled it into an IRA at Vanguard and bought some VTSAX. It went down, and my employer’s stock has gone up and up. You never know. It was still the right call on paper, as I had too much net worth wrapped up in one company.

 

[scrabbler1]

My old employer let me diversify a portion (25%) of my ESOP this year. I rolled it into an IRA at Vanguard and bought some VTSAX. It went down, and my employer’s stock has gone up and up. You never know. It was still the right call on paper, as I had too much net worth wrapped up in one company.

I faced a similar dilemma. My old employer began their ESOP in 1997. The stock value began rising quickly in the next few years. We were not allowed to diversify until 2002, when we could sell 25% of our shares back to the company. In 2005 we could sell back more shares. I chose to sell back the shares (this was in the wake of the Enron debacle and other company stock collapses, and I was also uneasy about having so much money tied up with one company) and invest the proceeds into any fund currently available for our 401k. I chose a bond fund which did okay, but not as well as the ESOP shares whose value kept exploding upward.

It wasn't until around 2006 when my ER plans were beginning to take shape. A big part of it was to liquidate those ESOP shares using NUA (to lessen the tax bite) and take the cash. If I hadn't diversified, I'd have had a lot more cash after the liquidating even though the rollover IRA would have been smaller (but not by nearly as much as the ESOP had risen).