Asset sale with Leverage Esop

[Lori Foresz]

I realize there may not be too much guidance on this one, but thought I would get some thoughts.

Small company has leveraged ESOP and all employees are terminated upon sale of the company.

Plan has last day of year rule in order to share in contribution. All employees terminated, therefore no eligible participants as of year end.

It seems that the ESOP would have to default on the note payment since the company can't make a contribution that can't be allocated nor deducted.

In that case the stock would revert back to the original sellers (the owners), participants would be cashed out, and the plan would be terminated.

I assume we will need a stock valuation. Am I missing anything besides the fact that they should obtain legal counsel and preferrably file for a determination letter. Is my thinking in line?

[BeckyMiller]

Wow - there are so many potential gotchas in this message that I feel like the only thing to say is get competent ERISA/ESOP counsel and get it now. I know it is a small plan, but you probably don't want the whole transaction to blow up in the seller's face. There may have been voting issues on the sale decision - that's a qualification issue. Fiduciary issues on the sale. Prohibited transaction issues on the sale and the satisfaction / default on the loan, etc. etc. etc.