Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.
Benefits January 29, 2007
Va. Furniture House Firm Axes ESOP for 401(k)
January 29, 2007 (PLANSPONSOR.com) - A
Virginia-based marketing company for the home furnishing
sector announced Monday that it would shut down its Employee
Stock Ownership Plan (ESOP) and shift the participant
balances to a 401(k) plan because the cost of maintaining the
ESOP got too high.
Reported by Adrien Martin
Hooker Furniture Corp. said that part of the reason for the shift away from the ESOP is because of its decision to cut jobs by about 1,000 workers when it switched from being a domestic wood manufacturer to more of a marketing firm.
“ Our decision to discontinue the ESOP was primarily based on the fundamental change in our Company ‘ s business model over the last few years, “ said Paul B. Toms Jr., chairman, chief executive officer and president, in a company news release. “ In light of our changing business model, terminating the ESOP is in the mutual best interests of the Company, its shareholders and its employees. “
A higher share price since the plan’s inception in 2000 and fewer employees made the plan cost as a percentage of payroll too great, according to an Associated Press report. The plan averaged 7.5% of payroll from 2004 through 2006, but the company expected the payments would have ballooned this year, the news report said.
The firm expects to cut another 280 jobs in March when it closes its remaining manufacturing facility.
Hooker said in its announcement that previously unallocated shares of company stock held by the ESOP will be allocated to eligible participants Under the terms of the ESOP, a participant ‘ s ESOP account balance will be rolled over to the company ‘ s 401(k) plan, unless the participant otherwise chooses a distribution or a rollover to an IRA or another qualified retirement plan.
According to the AP, Hooker Furniture will pay a one-time charge of $18.4 million to account for the change, but predicts an annual savings of at least $3.4 million by closing the plan.