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EGTRRA Restatement Determ. Letters on ESOPs

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#1 gaham


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Posted 08 February 2010 - 11:12 AM

Just curious to know whether anyone has received a determination letter on their EGTRRA restatement ESOP document. We received a favorable letter on a cycle A plan, but not a word on cycle B filers or later. Anyone have any info on when these will shake loose?

#2 A Shot in the Dark

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Posted 08 February 2010 - 03:03 PM

We are a TPA firm that provides services to many ESOP's. We do not provide document services to our ESOP clients.

But we have copies of EGGTRA determination letters (sent from the client or their attorney) for cycle B filers. We started receiving copies in October and November of 2009.

I hope this helps.



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Posted 09 February 2010 - 01:18 PM

The agents in Cincinnati responsible for reviewing applications, after meeting stiff opposition from many practitioners regarding changes the IRS demanded be made to ESOP documents, stopped reviewing the plans and issuing letters. Instead, they sought "technical guidance" from the National Office. To date, the National Office has partially answered two of 12 questions asked.

#4 GMK


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Posted 23 February 2010 - 02:28 PM

Thanks for the interesting info, JLHKD.

Is there a google phrase or specific online sites to get more information about this?

#5 RLL


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Posted 24 February 2010 - 04:29 PM

Check I recall that a relatively recent "Employee Ownership Update" column by Corey Rosen addressed this.

Edited by RLL, 24 February 2010 - 04:30 PM.

#6 GMK


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Posted 24 February 2010 - 05:22 PM

Thanks for a good start, RLL.

The 2 issues I've found relate to segregation and diversification of former employees' accounts. Still can't find the "12 questions," which, of course, may all deal with only these 2 issues.

#7 A Shot in the Dark

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Posted 24 February 2010 - 05:22 PM

RLL is correct. Corey did discuss the topic, listed below in his Employee Ownership Update December 1, 2009.

ESOP Account Segregation, Rebalancing Update

Some months ago, there was optimism that the IRS would issue some kind of pronouncement on what approach it would take toward ESOP account segregation or rebalancing. Account segregation is where an ESOP company buys the shares of former employees and reinvests that money in other investments until distribution occurs some years later. Segregation is used to prevent former employees from benefiting from increases in share prices and to protect them from losses, arguably a very prudent retirement policy. Segregation can also help free shares for new employees and may be useful in managing repurchase obligation for some companies. Rebalancing occurs while participants are still employees. Each plan year, cash in the ESOP is used to buy shares in the ESOP in such a way that everyone ends up with the same proportion of cash and stock. Rebalancing is appealing to many mature ESOPs as a way to get shares to new employees.

The IRS had not been issuing letters of determination for plans with segregation provisions, although there was no official policy to this effect. But in the last several weeks, there have been reports that its concerns have been mollified. One concern was that employees would be impaired in their ability to demand a distribution in the form of company stock. While they could make that demand, if the plan used the cash to buy shares from the company, the basis for those shares could be much higher than it would have been if the account had stayed in company stock. Companies can solve this problem by reacquiring shares from accounts in the plan that have a basis as close as possible to the participant's basis at the time of segregation.

The IRS approach on rebalancing is also ambiguous. Rebalancing is not allowed to solve anti-abuse problems in S ESOPs, but many companies do have this feature in their plans for other purposes. Some IRS officials have informally said they may want to evaluate if rebalancing is consistent with ERISA, but there have been no indications that plans with these provisions have faced any specific problems. [/b]

#8 GMK


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Posted 11 March 2010 - 05:07 PM

This article:


provides some useful details on fund segregation, rebalancing, and reshuffling (court decision and IRS memo), but I don't know if all of Cincinnati's questions have been answered.