Greetings,

I was wondering if anyone else has run into this problem yet.

I have a leveraged ESOP that just became leveraged in 2007. So, its two years into its loan. For 2008, the value of the stock dropped over 20%. Now, if you look at the net assets of the plan, the value of the plan is negative.

My question is how do I report this on the 5500? Is it ok to have a negative value? Do I leave the Schedule I out of balance?

Any help you can provide would be greatly appreciated.

CitationSquirrel,

This happens all the time, in fact more often than not. It's sometimes referred to as the "post-transaction drop in value." It is perfectly acceptable to report negative equity on the Schedule I/H. The plan's liabilities do, in fact, exceed its assets. Within a few years, as the debt is paid down and the company grows, the stock will hopefully recover in value and the plan's net assets will become positive again.

Best,
Marcus