Tracking Down a Failed Bank’s ESOP Account
Q: When I quit my job at a bank in 1984, I was fully vested in its employee stock ownership program and there was a cash balance in the ESOP account. The following year the bank failed. Since then I have been unable to get any information about the account from its administrator or the Federal Deposit Insurance Corp., which took over the bank. Is there any way I can find out what happened to the funds, which I expect would have been distributed to the vested employees by now? --M.A.A.
A: Unfortunately, you are caught in a sad spot. Although you have the full right to recover what is yours or find out why not, recovering your money or even learning what happened to your ESOP may prove impossible because your company has been out of business for six years.
And even if you are able to track down the truth, you probably will learn that there is no money in the ESOP to distribute because the fund was invested in company stock that has probably long since become worthless.
Still, you are entitled to be told this by an authoritative source with full access to the complete facts regarding your situation.
The Employee Retirement Income Security Act of 1974 (ERISA), administered by the Department of Labor, entitles you to information about the assets in your company’s ESOP. The administrator of the plan, usually an employee of the company, should be able to provide that information. However, because your bank collapsed so long ago, the plan administrator is probably long gone from the scene.
The plan’s trustee, usually a bank or thrift association, should also be able to tell you what happened to the ESOP. Check your ESOP records; the trustee should be listed. If the trustee knows anything about the plan, it is legally obligated to tell you.
As a last resort, you can contact a special unit within the Labor Department dedicated to handling inquiries and complaints about ESOPs. Write to the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, Room N5658, 200 Constitution Ave. N.W., Washington, D.C. 20210.
You should provide copies of every piece of information pertinent to your ESOP, including its name, annual report and summary plan description. Be sure to explain that you are seeking information that you have been unable to obtain through conventional means.
Again, don’t get your hopes up. Although the law is indisputably on your side, you will probably be told that your company’s ESOP has no assets to distribute because the ESOP was invested in the bank’s stock, which became worthless when the bank failed.
Your predicament illustrates why some corporations and employee benefits consultants are increasingly stepping away from ESOPs as a way of providing for their workers’ pensions.
Although these plans were originally seen as a way of motivating employees by allowing them to share in the company’s successes, the downside is becoming increasingly evident.
When corporations fail or file for bankruptcy, as they have been doing in record numbers in recent years, their stock is the first to plummet. And along with it goes the pensions of hard-working employees who are usually blameless for the company’s woes.
The hard-learned lesson for the rest of us is to be sure that, whenever possible, we diversify our retirement investments.
Default Rates on Municipal Bonds
Q: A recent article noted that defaults on municipal bonds are hitting an all-time high. Can you tell me what percentage--or number--of California municipal bonds have defaulted in the past 10 years? --J.B.W.
A: Since 1982, state, municipal and other local government agencies in California have sold more than 9,300 bond issues with a total value of more than $200 billion. Of this total, there have been 22 defaults worth $128.5 million, according to the California Debt Advisory Commission.
Of the 22 defaults, more than half were issued by governmental agencies on behalf of private--usually land development--interests, where the proceeds were used to build shopping centers, motels, and industrial parks, according to the California Municipal Bond Advisor, a San Diego investment newsletter.
However, you should know that this tabulation includes only defaults where bondholders were not repaid. Technical defaults, which include situations where the public agencies fail to meet special bond requirements, are not included in the totals.
The $128.5-million default total also does not take into account partial cash settlements made to bondholders of $65.9 million, leaving the total potential loss to bondholders of $62.6 million--hardly a figure, as the newsletter notes, “to cause fear in the heart of municipal bondholders.”
NOTE: A recent column covering demands by the bankruptcy court overseeing American Continental Corp. for repayment of certain redeemed debentures issued by the company contained erroneous information from Encino bankruptcy attorney Earl Hagen.
Hagen, who is representing several of the nearly 2,000 bondholders who have been ordered to return about $24 million in bonds, said his comments should have stressed that bondholders should not return the redeemed bond proceeds if they intend to fight the court’s efforts.
Hagen said bondholders who intend to contest the bankruptcy court order should consult a competent bankruptcy attorney immediately about their alternatives. Bondholders wishing to comply with the court’s order can remit 85% of the proceeds, plus interest, and keep the remaining 15%.