ESOP RMDs due April 1st

It won’t be long and April 1st will soon be upon us.  One requirement for ESOPs and other qualified retirements plans is to distribute Required Minimum Distributions (RMDs) to eligible plan participants.

ESOP Administration: Have you distributed your RMDs due April 1st?

It won’t be long and April 1st will already be upon us.  One requirement for ESOPs and other qualified retirements plans is to distribute Required Minimum Distributions (RMDs) to eligible plan participants.

ESOP Distribution Timing: Diversification

The Tax Reform Act of 1986 established the ESOP diversification rules under IRC Section 401(a)(28). As a result, the ESOP diversification provisions do not apply to employer securities held by an ESOP that were acquired before January 1, 1987.

IRS Review of Your Written ESOP Distribution Policy Document

We have recently discussed some of the statutory ESOP distribution rules:

ESOP Distribution Timing: Mandatory Distributions

We have been discussing the ESOP distribution timing rules and the distribution timing rules applicable to all qualified plans. The Internal Revenue Code provides that a qualified plan may process distributions of $5,000 or less without the written consent of the participant.

ESOP Distribution Timing: Qualified Domestic Relations Order (QDRO)

The ESOP distribution timing rules for terminations due to Death, Disability, and Retirement and Other Separations of Service are in addition to the distribution rules that apply to all qualified plan distribution rules. Generally speaking, the Internal Revenue Code does not allow the assignment of an account balance. It does make an exception for an alternate payee under a qualified domestic relations order (QDRO):

ESOP Distribution Timing: Required Minimum Distributions

The ESOP distribution timing rules for terminations due to Death, Disability, and Retirement and Other Separations of Service are in addition to the distribution rules that apply to all qualified plan distribution rules. Yesterday we talked about the ESOP Latest Commencement Date. The provisions are another instance where the general qualified plan distribution rules in the Internal Revenue Code can supersede the ESOP distribution rules for Death, Disability, and Retirement, Other Separations of Service, and the ESOP Loan Exception, and ultimately impact the distribution commencement date. The Code also provides distribution timing provisions for deceased employees that supersede the ESOP Loan Exception.

ESOP Distribution Timing: Latest Commencement Date

The ESOP distribution timing rules for terminations due to Death, Disability, and Retirement and Other Separations of Service are in addition to the distribution rules that apply to all qualified plan distribution rules. The Internal Revenue Code provides that distributions must generally begin no later than the 60th day after 1) the later of age 65 (or the normal retirement age if earlier), 2) the 10th anniversary of participation in the plan, and 3) termination from service.

ESOP Distribution Timing: Loan Exception

We have discussed the ESOP distribution timing rules for terminations due to Death, Disability, and Retirement and Other Separations of Service. If there is an outstanding ESOP loan, the Internal Revenue Code allows payments to be deferred until the close of the plan year in which the loan is paid in full.

ESOP Distribution Timing: Other Separations of Service

We previously discussed the ESOP Distribution Timing rules for Death, Disability, and Retirement. The Internal Revenue Code provides that ESOP distributions to participants that terminate for reasons other than death, disability, or retirement must begin no later than 1 plan year after the end of the 5th plan year after the year of termination. For example (assuming a 12/31 plan year end), if a participant terminates on June 29, 2009, the participant must begin receiving payments after the December 31, 2014 allocation is completed (which should be sometime in 2015), and the payment must begin by December 31, 2015.

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