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Recirculation versus Redemption.

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In our ESOP, we had some distributions. We meant to distribute in shares and then immediately buy those shares from the participants in order to get them out of the ESOP (i.e. redeem the shares).

Instead of doing a redemption, we accidentally cashed out the participant with cash. Now the shares are stuck in the ESOP and have to be recirculated. Is there any way to go back and fix this? Can we simply take the shares out of the plan and pretend the cash payments to the participants were just the company paying for the shares that were distributed from the ESOP? What paperwork do we need?

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  • 3 months later...

I have a similar situation except our plan didn't have the cash. The plan is leveraged and has only been in existence for 3 years. In our situation, the sponsor paid these individuals because the plan did not have the cash. Can the company leave these shares that were "distributed" in the plan and allocated with the other share contributed? Does the document have to allow for this?

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Did the distribution forms say the share were distributed? Does the plan allow for shares to be distributed?

Was the intent for the shares to be distributed?

If so, isn't the error the share never left the plan? If so, isn't the correction to get them out of the plan now?

If the intent was for the shares to stay in the plan the whole time and there was suppose to be a contribution to the plan to fund the distributions I will have to think about it a little more.

Can you confirm what the intent, forms and document say? I think that will help determine if there is an easy or hard correction.

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