Guest Pennysaver Posted May 11, 2010 Share Posted May 11, 2010 Can anyone point me towards an authority regarding the treatment of an intentional ESOP loan default as a prohibited transaction? Thanks! Link to comment Share on other sites More sharing options...
A Shot in the Dark Posted May 11, 2010 Share Posted May 11, 2010 I don't believe a prohibited transaction occurs when an ESOP Loan defaults. The loan and pledge agreement should outline the process to follow in the event of a default. You might also find language in the loan and pledge agreement that state a default can only occur if the company has complied with the covenant of the loan and pledge agreement relating to making cash contributions, dividends, etc. to the ESOP. Link to comment Share on other sites More sharing options...
Guest Pennysaver Posted May 11, 2010 Share Posted May 11, 2010 I don't believe a prohibited transaction occurs when an ESOP Loan defaults.The loan and pledge agreement should outline the process to follow in the event of a default. You might also find language in the loan and pledge agreement that state a default can only occur if the company has complied with the covenant of the loan and pledge agreement relating to making cash contributions, dividends, etc. to the ESOP. Fair enough. But if the default occurs intentionally, and benefits the plan sponsor rather than the plan participants, then at the very least isn't it a fiduciary breach? Both for that reason and the fact that it violates an ESOP plan terms? Link to comment Share on other sites More sharing options...
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