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ESOPs typically pay large distributions in installments. If this one doesn't, ESOPs do have an exception in the 411(d)(6) rules about changes in forms of payment. That can help spread out the cash requirements, but they still need to start saving what they can. Have they made any cash contributions to the ESOP in the past that were not used to purchase stock? Paying the distribution with a note requires adequate security. See 54.4975-7(b)(12)(iv). Our ESOP clients have company accounts dedicated to accumulating funds to cover their future repurchase liability. The best time to start planning for the eventual distributions is when the ESOP is set up. If not, then better to start late than never.

I have an update for you. Today I received from Benefit Plans the documents I requested in writing and from a discovery standpoint, I have to deduce that there was nothing sent to my previous name and address on file beyond the certified letter I got from them initially notifying me of the QDRO. They did include a letter with a decision from the Administrative Committee stating that I am now entitled to back benefits dating back to when my ex-husband retired on 1/2009 which also includes interest. They included, as I requested, a spreadsheet of how they calculated my benefits as well as the interest. I had my tax advisor look at the calculations and she said it looked good to her so I am pleased with it. Thanks for everyone's help. Now what happens if and when Benefits decides to go after my Ex for the back benefits is between them. Not my problem at this point.

This points to why repurchase liability studies are so important and having a plan to pay the benefits. You go to an ESOP conference and there are multiple breakout sessions on this topic at EVERY conference. it doesn't matter if the conference is small or large this is one of the big topics. If you think about it an ESOP will most likely in a 15 to 20 year period require most of the outstanding stock to be purchased. I know that doesn't help them now but I thought it was worth mentioning. You don't really define very large. However, have them check the document to see if it has the rule that allows the payment to go as long as 10 years if all the conditions are correct. Currently, the break point is if the balance is over $1,105,000 you can add 1 year and than another year for every $220,000 over that up to 10 years. So if this person has say a $3M balance it could be more than 5 years. I would have to do the math when it hits 10 years with these break points. These amounts adj for the CPI each year. These rules are typically some place in the distribution section of the plan document. If the person isn't retiring for a few years they could put in an in-service provision for people this person's age group (I am thinking he is like 62 to 65 or older for this to work) and allow him to start taking payments now to help stretch things out. So if he is a few years from retirement and they allow him to take a few hundred grand out a year now it should help get the balance down when the installments start. Of course if they have a bunch of people in this age group and they all start taking payments it might be worse. They would have to look at the facts. I would add it isn't uncommon for a person with these kinds of balances to be a long term employee who has a fair amount of loyalty to the company. A conversation of the situation and setting something where he chooses to take something less than a full payment (might require some kind of amendment once again) has happened before. it isn't really in his best interest to cripple the company with his first few payments either. In the extreme there are stories of ESOP companies that have to sell themselves because they can't fund the repurchase obligation.

Plan Sponsor could utilize the overpayment rules under EPCRS. Since this is not a small amount, the Plan Sponsor would be required to seek return of the overpayment (adjusted for earnings) from the AP. The overpayment is required to be returned to the Plan regardless. Either the Plan Sponsor (or the rules say another person) can contribute the money if not returned from the AP. At that point, a decision can be made what next steps should be taken to recoup the money from AP

Important point here, make sure the SEP doc says "3" and not "2" - or "1" - or "0"