More 404(k) madness

[Guest carsca]

Assume that an employer stock fund held by a 401(k) will be designated as an ESOP.

The Plan currently provides that participants may elect to take distribution in the form of a lump sum or annual installment payments up to 15 installments.

Question: Does the Plan need to change its distribution requirements in order to meet the requirements of Section 409(o)?

Thanks in advance!

[RLL]

Hi carsca ---

Distribution in installments over a period longer than generally required under IRC section 409(o) is permitted so long as it's at the election of the participant. From what you've described, it appears that the distribution provisions would satisfy section 409(o).

[Guest carsca]

Thank you for answering my message RLL.

As a follow up, are there special forfeiture rules that the KSOP must comply with?

--Carsca

[RLL]

Carsca ---

No.....

[Guest carsca]

Thanks again.

It appears then that the special forfeiture rule only applies in a leveraged ESOP scenario.

[RLL]

carsca ---

The special ESOP forfeiture provision of IRC section 415©(6) is available to a KSOP which includes a leveraged ESOP....but it is not a "rule that the KSOP must comply with."

For any leveraged ESOP (including a leveraged KSOP), that provision allows the employer's plan to provide that forfeitures of leveraged shares are allocable without regard to the regular 415© limit (during years when payments are made on ESOP debt) ....if the "1/3 allocation" limit is satisfied. But its use in a particular ESOP is not required.

[Guest carsca]

So, bottom line: the provision is inapplicable to an unleveraged KSOP.

Right?

[RLL]

carsca ---

Right.....