installment distributions

[Guest JBeck]

How would installment distributions work in an ESOP? When a person terminates and wants monthly distributions over 5 years, do you liquidate all the stock in the participant's account at termination, and distribute cash monthly, liquidate one year's worth of stock at the beginning of each year, etc? How does it work?

[stephen]

Generally, 1/5 of the stock is sold at the current fair market value for the first distribution, 1/4 of the remaining stock is sold after the end of the second year at the then current fair market value, etc.

[RLL]

It's quite uncommon for an ESOP to allow for monthly installment distributions. Most ESOPs that distribute on an installment basis provide for annual payments.

In addition, using the method that stephen outlines would result in the installment payments being made over a four-year period. Distributions over a five-year period, as described in IRC section 409(o)(1)©, would allow for six annual payments, the first of which represents 1/6 of the stock, the second of which represents 1/5 of the remaining shares, etc.