Once you have some insight on the basics of an ESOP it’s time to gain an understanding on more of the details, ESOP plan provisions.
Distribution Timing
- Retirement, disability, or death-as soon as administratively possible.
- Other termination usually delayed 5 years unless small vested balance.
- C corporation can also delay until loan is fully paid.
Distribution Options
- Typically substantially equal installments over 5 years.
- Lump sum for smaller balances.
- Stock distributions with a “put” or “call” option.
Diversification Rights
- Closely-held corporations
- Must be offered to anyone who is age 55 and has at least 10 years of ESOP participation .
- In first five years, must be able to diversify up to 25% of all shares ever allocated to the participant,; sixth year can diversify up to 50%.
- Options-transfer to 401(k) plan, permit cash distribution, and/or offer at least 3 other investment options within the ESOP.
- Have 3 months after year-end to make the election, with payment in 6 months.
- Publicly-traded corporations-only requirement is 3 years of service.
Have ESOP questions? Contact our team!