Is ESOP Sponsor Liable for Paying Out Sooner Than Required?

In an unusual lawsuit, former employees of King & Prince Seafood are charging that a change in ESOP distribution rules to pay out former participants three years after departure instead of five violated ERISA's anti-cutback requirements. The plan was also changed so that the payout was based on the valuation as of the end of the prior year, rather than when the payout occurred. Paying out sooner than the law requires and basing payments on the last valuation are common plan provisions in ESOPs. A district court certified the case for class action. Employees were upset because under the old rules, they would have received substantially more than under the new ones because the company's stock price rose sharply in the year of the payout. The case Del Rosario v. King & Prince Seafood Corp., No. CVF 204-036 (S.D. Ga. 3/7/06) now must be decided on its merits, but it is a novel theory that what would normally be perceived to be a change in the plan to benefit employees could be interpreted as damaging them by not allowing them the maximum possible time to hold onto their shares.