Direct rollover of proceeds of ESOP distribution

[Guest janie]

A company where the bylaws restrict ownership of company stock to company employees and the ESOP, states in its benefit election forms that the ESOP will distribute the participant's interest entirely in the form of company stock, and that the participant will be required to sell to the company the shares that will be distributed to him, under the fair valuation formula for the year as determined by the ESOP's independent appraiser. (The form also contains a portion in which the participant can elect to make a "direct rollover" and contains spaces for the participant to set forth the name of the qualified plan or IRA trustee to receive such a "direct rollover.") Can a participant who receives a distribution per this form, in fact ever make a "direct rollover" under 401(a)(31) of the cash that he receives on this "automatic" sale? (If so, what is the authority for that position? Cites?) If not, can he rollover the proceeds from the sale of the stock to an IRA or another qualified plan that accepts rollovers, per 402©(6)? (It does not sound from the wording on the form, that the ESOP is going to actually be distributing any shares of stock. If it did, then maybe the participant could have his IRA trustee acquire the stock in a "direct rollover," thus avoiding any withholding, with the IRA trustee then simultaneously selling back the stock to the company.) I guess I'm a bit confused as to whether a "direct rollover" under 401(a)(31) is an option at all here, since it sounds like the employee is forced to "receive" the stock in a distribution taxable under 401 and 72, and then simultaneously "sell" the stock to the company.) Thanks for any help!

[QDROphile]

You need to get the step by step details form the plan administrator about how the arrangement will actually work and what will be distributed. It appears that the SPD does not have the details. It is possible that the distribution and direct rollover will be in cash. It is also possible that the direct rollover will be in shares, but the the ultimate conclusion of the transaction will be delivery of cash in payment for the shares. It is also possible that the distribution will be in shares and be purchased prior to the rollover, but the cash will be delivered to the IRA as a courtesy so it looks like a direct rollover. If the distribution is 100% employer securities, there is no withholding whether or not the amount is rolled over directly.