Grimmace, such distributions may be permitted if the company is closely-held (i.e., not publicly traded) and its bylaws restrict ownership of at least 85% of the outstanding shares of company stock to employees of the company or the ESOP, or if the company is an "S corporation." Before hiring a lawyer, you may want to contact the human resources department of your company and ask for a copy of the new distribution policy, which may describe the legal basis for making such installment distributions. If you're still not satisfied, contact the ESOP Association (www.esopassociation.org) or the NCEO (ww.nceo.org) for assistance.



[This message has been edited by hapa123 (edited 05-02-2000).]

Also keep in mind that employees who are 55 and have ten years of participation have the right to invest part of their accounts in something other than employer stock.

Make certain that you understand all of the rules.

I believe that both "hapa123" and "IRC401" may be confusing the issue. An important factor here is whether the shares were acquired by the Amsted ESOP before January 1, 1987. Also, what are the specific provisions of the Amsted ESOP relating to the timing of benefit distributions and changes thereto?

Whether or not the company has an ownership restriction in its bylaws or is an "S corporation" is likely irrelevant to this issue. The issue posed by "grimmace" appears to involve a change in the timing of ESOP benefit distributions, under IRC (Internal Revenue Code) Sections 409(h) and (o) and 411(d)(6)©, not the form of distributions (cash v. stock). The relevant IRC provisions, as well as a corresponding provision of ERISA, were added/amended by the Tax Reform Act of 1986, so that different rules apply to shares acquired by the ESOP prior to 1987.

Also, the age 55 and ten years of participation ESOP "diversification" rule under IRC Section 401(a)(28)(B) is required to apply only to shares acquired by an ESOP after 1986.




[This message has been edited by RLL (edited 05-08-2000).]

It appears to be a 409(h)(5) issue (and it would certainly be helpful to have all of the facts), and you are correct that the 1987 cut-off date is important. If the plan is going to start distributing shares and reacquiring them, it will have to deal with 401(a)(28) in the future. I don't see how it could be a 409(O) issue. They could spread the payout over five years, but they would have to credit market investment results each year unless someone has figured out how to create a cash-balance ESOP.

IRC401 ----

It's a Sec. 411(d)(6)© issue.....the extent to which benefit distribution options may be changed under an ESOP.

Sec. 409(h)(5) relates to put options with respect to non-tradable shares of employer stock that are distributed by an ESOP. "grimmace" appears to have said that the ESOP distribution options are being changed.

RLL-

We can speculate all we want on the facts. Nevertheless, I find it hard to believe that there would be a 411(d)(6) problem. All they have to do to avoid a problem, is not be discriminatory.