ESOP financed securities exception of 409(o)(1)(A) & S Corps

[Guest tcroscut]

I have read in a couple of places that the financed securities exception of 409(o)(1)(A), which permits ESOPs to delay distribution where the exempt loan is not yet repaid, does not apply to S Corporations. Is this accurate?

[Guest Degrandville]

409(o) allows a plan to delay the distribution of employer securities until the loan, as described in Section 404(a)(9) of the Code, is paid in full. The key here is Section 404(a)(9) describes a loan that does not apply to S Corporation. So, most professionals in the ESOP committee agree that the exception does apply to S Corporation ESOPs.

[stephen]

Note, you may have an issue if, for example, the plan has a 20 (or longer) year loan and you try to delay distributions until the loan is paid in full.

If you make participants wait 20 or more years to recieve a distirbution are they receievng a benefit from participating in the plan?