IRC 409(o)(1)(B) restriction

[J2D2]

We have a leveraged ESOP in which the loan is still being repaid. I'm trying to determine whether the restriction in Code section 409(o)(1)(B) is permissive or mandatory. In other words, may the shares in a terminated participant's account that were acquired with the proceeds of an exempt loan be distributed before the loan has been repaid in full?

[RLL]

Hi J2D2 ---

The restriction is permissive. Nothing in section 409(o) prevents the distribution of shares prior to the repayment of the ESOP loan. If the provisions of the ESOP plan document allow such a distribution and the participant consents (if required), the shares may be distributed. In fact, in certain situations section 401(a)(9) and (14) may require that distributions commence prior to the repayment of the loan.

[J2D2]

Good answer, RLL!! Thanks.

J2D2