ESOP purchases

[Guest susa]

A bank with an ESOP plan has made contributions but there isn't enough bank stock available to purchase with the cash they have. Is there a "threshold" of cash they should hold? I need a little assistance on this one. Thanks.

[BeckyMiller]

No threshold. The ESOP is intended to be invested primarily in qualified employer securities. There is an old DOL Advisory opinion that says that this is a life cycle determination, not a point in time. However, I recall a recent IRS action that said that there was some time limit on how long the ESOP could be in existence without ever having stock. It seems to me that it was a relatively short period - 2 years???? It was probably a PLR, since that seems to be where all the ESOP guidance is found. It may have been a case.

Anyway, standard fiduciary conduct applies to the investment of the funds. So, if the fiduciary wants to hold them fairly liquid in anticipation of stock becoming available, they need to document that.

Is there a reason why the employer won't contribute new stock to the plan? (I realize that is not always easy, but if the ESOP status is important to them, it may be advisable.)

[smm]

Does anyone have a citation to the case/ruling/etc. that Becky Miller has referred to? If so, could you post it. I tried to find it, but so far, no luck. Thanks for your help!

[Kirk Maldonado]

I would change the emphasis of Becky Miller's posting a little bit,. Specifically, I think that the emphasis should be on intended and not on primarily. A mandate that more than half of the plan assets be invested in employer stock raises too many fiduciary issues, and I don't think is the correct interpretation.

I must confess that I had been working on ESOPs for many years before I got that epihany.