Interest on ESOP Installment Payments

[Guest JHadel]

I believe when terminated ESOP Participants are paid their vested balance in installment payments, interest is required to be paid on the upaid balance of the installment distribution.

How is the interest rate determined? Any help would be appreciated.

[QDROphile]

Your question implies that you have stripped the account of employer securities at the time of the initial installments. First, are you comfortable with that? Second, shouldn't account assets be invested and investment returns credited to the account?

If you did not strip the account of employer securities, you must have frozen the value of the account for purposes of distributions. If you did that, go to the architect and get an explanation that makes sense and that is legal. Then share the wisdom with the rest of us.

If you did not strip or freeze, the account takes care of itself. It is invested in employer securities. The value may go up or down, just like any other investment. The value of each installment distribution is determined by the assets

in the account at the time of distribution.

Perhaps you are an ESOP particpant that is being victimized by stripping or freezing. Then your question is on the right track, but much too narrow.

Perhaps you are not really describing distribution installments, but installment payments for stock purchased pursuant to the statutory put option. In that case, the interest on the obligation must be at a reasonable rate and the debt must be backed by adequate security.

[Guest JHadel]

QDROphile,

Thanks for the response. My terminology was not proper. I am talking about installment payments related to put options.

I just thought there might be something out there that would state specifically what that interest rate would be. Such as the Prime rate or LIBOR or something like that.

Any how your response is appreciated.

[BeckyMiller]

I am not aware of any guidance on the specific interest rate to be used. All the guidance uses the typical waffle words about reasonable interest. Where most of the commentary seems to fall is on the nature of the security that needs to be provided to a participant on the put option loans.

You might check the ESOP Association or National Center for Employee Ownership to see if they have any statistics from their members.