Cycle C2 ESOP Determination Letters

The Cycle C2 submission deadline for an ESOP Determination Letter is January 31, 2014.  Here is a quick review of the process.

Determining ESOP Employees’ Date of Participation

If you are a December 31st plan year end, you may have, or soon will be collecting your 2012 employee payroll information and computing new participants for the ESOP.  Your plan document defines the eligibility requirements for your plan, but do you know what entry dates are used in your plan?

Excludable Employees in an ESOP

In a previous blog post on the eligibility requirements for an ESOP, I discussed the age and service requirements that can be written into a plan document to enter the ESOP.  It is quite common that plan documents will exclude the following individuals from participating in an ESOP, even though they’ve met the participation requirements allowed under IRC §410(a).

Handling QDROs in your ESOP

A domestic relations order (DRO) is a judgement, decree, or order that is made pursuant to state domestic relations law that relates to the provision of child support, alimony payments, or maritial property rights for the benefit of a spouse, former spouse, child, or other dependent of a participant.

Defining Disability in an ESOP

When an unforeseen event happens that disables a participant from continuing employment, the termination may provide additional ESOP benefits to the former employee.  Question is... do you know how your ESOP defines disability?

ESOP Administration: Account Vesting

Since an ESOP is a qualified defined contribution plan, it needs to follow the vesting rules described in IRC Section 411(a)(2)(B), which provides a plan must use a schedule at least as beneficial as the 3-year cliff vesting schedule or the 6-year graded vesting schedule for employer discretionary contributions. 

ESOP Administration: 415 Compensation Definition

ESOPs, like other qualified retirement plans, will define compensation in the plan document for purposes of allocating contributions, determining deduction limits, and nondiscrimination testing.  Depending on your plan design, you may have multiple definitions of compensation for different plan purposes.

ESOP Administration: When was the last time you updated and distributed your SPD?

ERISA §101(a) requires the plan administrator to furnish the Summary Plan Description (SPD) to each participant covered under the plan and to each beneficiary who is receiving benefits under the plan.  The SPD informs participants of the material provisions of the plan, how to make a claim for benefits, and what their rights are under ERISA.

Qualified Employer Securities (QES) and IRC Section 409(l)

Here is the second question on the Employee Stock Ownership Plan Review Worksheet:

Qualifying Employer Securities (QES)


Here is the first question on the Employee Stock Ownership Plan Review Worksheet:

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