Yesrod5

Marcus, Yes; you have put it very succinctly.

As silly as it may seem, it appears to me that a literal reading of Reg. 54.4975-7(b)(5) leads to the conclusion that - absent substantial C corp dividends or S corp distributions - an ESOP is hamstrung and cannot prepay a loan even though: (i) the loan documents expressly permit prepayment, (ii) the ESOP has plenty of cash (assume that the cash has accumulated through employer contributions that were in excess of the ESOP's payment obligation and were not designated as being made to the ESOP to enable it to meet its loan obligation), and (iii) prepayment would be in the best interests of participants and beneficiaries of the ESOP. Reg. 54.4975-7(b)(5) reads as follows (in italics) - - BEGIN QUOTE: "(5) Liability and collateral of ESOP for loan.-- An exempt loan must be without recourse against the ESOP. Furthermore, the only assets of the ESOP that may be given as collateral on an exempt loan are qualifying employer securities of two classes: those acquired with the proceeds of the loan and those that were used as collateral on a prior exempt loan repaid with the proceeds of the current exempt loan. No person entitled to payment under the exempt loan shall have any right to assets of the ESOP other than: (i) Collateral given for the loan, (ii) Contributions (other than contributions of employer securities) that are made under the ESOP to meet its obligations under the loan, and [emphasis added] (iii) Earnings attributable to such collateral and the investment of such contributions. The payments made with respect to an exempt loan by the ESOP during a plan year must not exceed an amount equal to the sum of such contributions and earnings received during or prior to the year less payments in prior years. Such contributions and earnings must be accounted for separately in the books of account of the ESOP until the loan is repaid." [emphasis added] END OF QUOTE Beginning with the next-to-last sentence, we see that "payments made with respect to an exempt loan by the ESOP during a plan year must not exceed an amount equal to the sum of such contributions and earnings received during or prior to the year less payments in prior years." If there are no signficant dividends or S corporation distributions, doesn't the language effectively mean that payments cannot exceed "such contributions" (i.e., contributions shown in bold above; in other words, contributions "made under the ESOP to meet its obligations under the loan")? And doesn't this effectively foreclose any possibility of prepayment by the ESOP in the situation described? Please set me straight on this.

Marcus and RLL, Thank you for your insight. It's most helpful.

After reviewing for the umpteenth time the letter to BenefitsLink regular poster, Kirk Maldonado, from Elliot I. Daniel dated March 2, 1987, and after reveiwing DOL Advisory Opinion 97-03A, Advisory Opinion 2001-01A, and other DOL guidance, it appears that generally speaking the costs of administering an ESOP (other than those costs relating to the settlor functions of designing, drafting, or terminating the plan) may be paid with plan assets (assuming the plan so provides). Given the requirements of ERISA Section 407(d)(6) and IRC Section 4975(e)(7) that an ESOP be designed to invest primarily in company stock (and I know that the two definitions are somewhat different - but we have just one class of stock in the situation I'm looking into), it seems to me that the expenses of negotiating a stock purchase agreement with a major shareholder to permit the ESOP to acquire sufficient stock so that it was "invested primarily in company stock" would be an expense related to the implementation of the ESOP and therefore payable by the ESOP. Advisory Opinion 2001-01A seems to be broad enough to include this under the umbrella of expenses of the "implementation of the plan." I would be most appreciative of any thoughts.

A certain well-known national provider has included the following in its Q&A's that accompany its standard amendment packet: "Q: Are all Cafeteria Plans with health FSAs required to be amended for this new limit?" "A: No. The amendment is only needed for health FSAs that permit contributions over $2,500. If the limit is $2,500 or less, then no amendment is needed."

We had a similar situation. As a result of a corporate merger in 2010, the original plan sponsor (Cycle B) went away and the surviving company (Cycle E) became the plan sponsor. The determination letter received in regard to a January 31, 2008 Cycle B filing for the plan said that it expired January 31, 2013. We looked at Section 11.01 of Rev. Proc. 2007-44 and felt that we could use Cycle E (although per Rev. Proc. 2007-44 it was clearly permissible to use Cycle B). However, we were concerned about the specific expiration date (January 31, 2013) of the current determination letter. We reached a knowledgeable person in EP at the IRS and were informally told by phone that a Cycle E filing should be fine despite the January 31, 2013 expiration of the current determination letter.