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Found 2 results

  1. Ok, so I'm crying uncle in trying to find the correct way to do this. Any ESOP Experts out there???? Please chime in. Cash Dividends were used to pay down a leveraged loan. The split between the two are approx 6% allocated and 94% unallocated. Using round numbers, the Employer made a $100,000 dividend payment. So naturally $6,000 would be for the allocated shares and $94,000 for the unallocated shares. Shewwww I can do math! So doing the FMV calculation, we find that the shares value based on the day before the loan payment is greater than the FMV on the date the dividends were declared. So no adjustments necessary. Shewwww again! So we move on to the share release. The loan payments paid with cash and unallocated dividends are released on proata compensation (according to the document). Easy Peasy....Shewww! The allocated dividend shares are to be released on prorata shares. OHHH crap. So my question is this..... Is the actual transaction a contribution or is it a dividend or just a transfer in? No where (that I can find) tells you exactly how the transaction should be structured from a recordkeeping endeavor. HELP!!!!
  2. Employer contributions to ESOP alocated based on compensation. ESOP provides that trust assets may be applied to pay loan. Upon repayment, shares are released under the Principal and Income method and are allocated pro rata based on compensation in the year of the loan repayment. ESOP has special "value rule" for the use of allocated dividends applied to pay loan. ESOP has substantial Employer cash contributions allocated to participant cash accounts. Can ESOP use allocated Employer cash contributions to pay off loan? If so, are shares released under the P&I method? How are released shares allocated back to participants? pro rata based on current year compensation under the formula (this seems unfair if the accounts were charged pro rata based on account balance)? Pro rata among participants based on the contribution debited from their cash account to pay loan? (value of shares returned to participant may not equal cash debited.) Must participant receive shares of equivalent value to the contribution debited from cash account to pay the loan (similar to treatment of dividends)? i.e., the loan payment is considered an equal exchange of cash for shares. Is this exchange considered reshuffling as described by the IRS? Should plan have a provision that address use of cash account to satisfy loan? Any comments/authority would be helpful.
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