Controlled Group

[Guest Fourohonekay]

Where an ESOP is sponsored by a company that is the member of a controlled group (CG), is there any rule that would prohibit the ESOP from investing in, and allocating to participants, the stock of more than one of the CG members at the same time? In other words, must the ESOP pick the stock of the company within the CG in which it will invest, and which it will allocate, and then stick with that stock exclusively?

Thanks.

[RLL]

Hi Fourohonekay ---

If the ESOP is a "statutory ESOP" under IRC section 409(a) or 4975(e)(7), it must be designed to invest "primarily" (not necessarily "exclusively") in employer stock which meets the requirements of IRC section 409(l). This may include stock of more than one member of the controlled group. These rules can become somewhat complicated in the case of closely-held companies. See section 409(l)(4) for special controlled group rules applicable to such ESOPs.

If the ESOP is actually a non-ESOP stock bonus plan, it may invest in any employer stock which meets the requirements for "qualifying employer securities" under ERISA section 407(d).

[Guest Fourohonekay]

Interesting. So, in a controlled group of companies A, B, C, and D, a "statutory ESOP" sponsored by company B could invest in, and allocate to participants, the stock of A, B, C, and D during the same plan year? Not saying anyone would do this, but it sounds like you are saying that they could do it.

Thank you.