Buyback of Stock from Frozen ESOP

[Christine Roberts]

Sponsor of a non-leveraged ESOP wants to get stock out of the plan but does not have sufficient cash to terminate the ESOP and buy everyone out at once.

Alternate option - freeze the ESOP and periodically buy back stock, hiring an independent fiduciary to represent the interests of the plan participants, and obtaining an annual third-party valuation of the company/stock.

Under the frozen plan scenario, though, when the stock repurchases reduce the ESOP's level of company stock to, say, less than 20% of total plan assets, is the plan in disqualified status? If so, can this be cured or prevented by converting the ESOP, either at the time of freezing or thereafter, to a profit sharing plan? The sponsor wants to establish a PSP but intended to do so separately from the ESOP.

FYI, this is a follow up to my earlier thread on the topic ....

http://benefitslink.com/boards/index.php?showtopic=11995

[RLL]

Hi Christine ---

Where have you been since last October?

I think that your questions were answered adequately in the earlier thread.

[Christine Roberts]

RLL - you are right, you or Kirk mention that the ESOP would become a non ESOP through divestment of Co. stock and would need to be converted or terminated. The new facts are that the employer wants to start a PSP along side the soon-to-be-defunct ESOP, but that raises other ERISA issues that are not specifically relevant to this board.

My bad!