Do you remember a company named Enron? This happened in 2001 and most people have probably forgotten about it but many people lost their life savings because they were invested in the company’s stock and had little other options on where to invest their money. One of the key things that happened as a result of the scandal was in 2006 the Pension Protection Act was passed that allowed employees to diversify out of company stock in their retirement accounts.
So what does Enron and the PPA have anything to do with this post?
I have family members that have a great deal of wealth tied up in their employers company stock and was asked what they should do to get their money out before a possible recession or depression hits.
There are only a few options.
- Quit – It is possible to get all the money out by quitting and requesting your ESOP be converted over to an IRA or a new employer 401k if allowed.
- Wait till 55 – There is an option to withdraw up to 25% of your ESOP for “diversification” purposes to an IRA or 401k but you have to wait till age 55.
From Kiplinger’s:
Employee owners with 10 or more years of service are eligible to get paid for their stock at age 55 (up to 25%) and age 60 (up to 50%) with the remainder in substantially equal payments over a five-year period at normal retirement age (usually 65). The timing above is common, but keep in mind that your company’s plan may have different rules. Employees receive a letter explaining how much they can withdraw and a form to indicate whether to receive a check or roll over their ESOP funds to an IRA or their 401(k).
source: Kiplinger.com
I hope that people get better control of their money in the future, it seems these 401k’s, IRA’s and ESOPs are designed to generate money for other people rather than their owners.