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For what it's worth, I think practically speaking option 2 covers the most ground. You followed the document (and law) by allowing diversifications during the plan year based on the most recent valuation, but have built in a mechanism to ensure the participants are not harmed in the end. The deal is not close enough to know the final transaction value. If there's not a binding LOI, one more month will not produce a final deal value either. At this point in the year, you'll be lucky to close by year-end, which means you'll need to decide if you want to skip payouts altogether for the entire 2024 plan year. As I'm sure you've seen, deals fall apart well past the signed LOI stage, so in my mind trying to approximate the deal value a month from now and pay it to diversifying participants is a non-starter. An interim valuation would not help, in my view, unless it also accounted for the pending sale, likelihood of closing, etc. Option 1 presumably would require an explanation to participants, as ESOP Guy notes. I'm not sure what added benefit would be achieved by not diversifying at all. Plus, it seems to me that it would pretty clearly violate the plan document and statutory diversification requirements. In almost all cases with a strategic buyer, the deal value will be higher than the most recent valuation (if it's not, that's a separate fiduciary concern), so in reality you're likely only to be increasing prior payments.

I stand by the idea 1 or 2 is what I see the most with 1 being very common. I see the virtue of 2. One of the big issues here really is can they even tell the employees. I can't tell you how many times in the decades I have worked in the ESOP world I have been looped in by management they are in talks and told to keep the number of people in my own firm who are told to a minimum. They want their ESOP TPA's input but the non-disclosure agreements make it very hard to tell the employees. The fact the sale isn't final means you don't in fact have any actual hard numbers to give the employees. I have seen deals at the letter of intent stage fall through. In the end almost no one in the company knew anything about how close the company came to be sold. I get the whole retirement plan issues but you can not lose track of the regular business issues and balance them with retirement plan issues. Once again there are court cases out there where people got paid and shortly later the company was sold for a lot more. A court required fiduciaries to disgorge gains to pay people who took a distribution at the lower price to get them up to the sales price. Paying a good attorney who can look at all the facts whole can guild the fiduciaries is cheap insurance in my mind here.

You were taught wrong. The due date of the contribution is the due date of the employer's tax return, including extensions. See IRC 404(a)(6).

For the moment, let's shift focus away from issues related to disclosing information to participants who must make personal decisions about their ESOP interest, and focus on what the plan document says about voting rights. Do participants have the right to vote shares allocated to their accounts on the sale of the company or the assets of the company, on a dissolution of the company, or conversion of the company to another corporate status? Are there provisions that allow participants to vote unallocated shares? Does the plan designate each participant as a plan fiduciary? If the plan specifies that the participants must be involved in the decision to sell the company, then the participants will need access to information sufficient for them to make decisions.