Sponsors of employee stock ownership plans may have a distribution policy to govern how distributions from the plan will be made. Frequently, these policies are afterthoughts and drafted without considering the sponsor’s unique circumstances. However, with the Internal Revenue Service reportedly ready to ask employee stock ownership plan sponsors to provide a copy of the plan’s distribution policy as a part of the determination letter process, sponsors should take a fresh look at their distribution policy or prepare one if a policy is not in place. The policy should be carefully thought out to meet the sponsor’s needs while balancing several competing interests.
Although these rules technically apply only to shares contributed to an ESOP after 1986, few (if any) ESOP sponsors add a level of administrative complexity by applying the "old" distributions rules to shares contributed before1987.
2.
Code Section 409(o)(1)(A)(i).
3.
Code Section 409(o)(1)(A)(ii).
4.
Code Section 409(o)(1)(B).
5.
Code Section 409(o)(1)(C).
6.
Code Section 409(o)(1)(C)(ii). This limit is subject to cost of living adjustments each year. The current limits are described in Revenue Procedure 2010-40.
7.
Code Section 409(h)(1).
8.
Code Section 409(h)(2)(B).
9.
Code Section 401(a)(4).Generally , a "highly compensated employee" is an individual who owns at least 5% of the employer or, in the prior year, had compensation from the employer in excess of a statutory amount (currently $110,000).
