The One-Stop ESOP Blog

The Tax Reform Act of 1986 established the ESOP diversification rules under IRC Section 401(a)(28) for qualified participants during the qualified election period.  ESOP diversification can be satisfied by a distribution, a transfer to another qualified plan, or offering three or more investment options in the ESOP (certain requirements apply).

As a Plan Sponsor of a mature ESOP with a December 31st plan year end, you need to be aware of the Internal Revenue Code's ESOP Diversification requirements that apply to your plan.

The ESOP Diversification rules provide that an ESOP must allow qualified participants to diversify a portion of the employer securities held in their account. A “qualified participant” is a participant who has completed at least 10 years of participation in the plan and has attained age 55.

Have you distributed your preliminary ESOP Diversification forms yet?

We have previously discussed the IRS 2010 401(k) Compliance Check Questionnaire that resulted in an IRS Audit for Plan Sponsors Who Didn't Complete the Questionnaire.  The IRS has published an interim report of the findings (Section 401(k) Compliance Check Questionnaire - Interim Report February 2012) and a chart of findings: