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ESOP Cash-Outs


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IRS Response to Technical Assistance Request #4 suggests that reshuffling provisions (or cash out provisions) that apply only to terminated employees and treat all of the terminated employees the same do not raise current or effective availability concerns under 401(a)(4). It would seem to me that there could be a 401(a)(4) issue if an ESOP has thresholds for cashing out terminated participants. In other words, anyone with a balance over $100,000 will be redeemed and placed into a cash account over the course of 5 years, but accounts valued at less than that amount would be redeemed immediately, placed in a cash account and ultimately distributed upon receiving consent. I think this would run afoul of 401(a)(4).

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