Diversification - minimum amount

[Guest oxdougw]

For ESOPs that allow diversification per the regs, my client thinks there's a minimum amount under which you do not have to make the distribution payment. He thinks it's $500. Is anyone aware of where I might find that in the regs?

Sal Tripodi's book on the topic refers to Notice 88-56 but I haven't been able to find a copy of that notice.

[WDIK]

I cannot provide a link, but here is an excerpt from Notice 88-56 that appears to be on topic. (I cannot speak as to the current applicability of the information.)

Q-7: What amount of employer securities held by an ESOP or tax credit ESOP constitutes a de minimus amount of employer securities that is not subject to the diversification of investments requirement of section 401(a)(28)?

A-7: If the fair market value (determined at the plan valuation date immediately preceding the first day on which a qualified participant is eligible to make a diversification election) of the employer securities acquired by or contributed to an ESOP after December 31, 1986, and allocated to a qualified participant's account is $500 or less, then such employer securities will be considered to constitute a de minimis amount of employer securities that is not subject to the diversification of investments requirement of section 401(a)(28). A plan may elect to use a de minimis amount of less than $500.

For purposes of determining whether the amount of employer securities acquired by or contributed to an ESOP after December 31, 1986, and allocated to the account of a qualified participant exceed the de minimis amount described above, employer securities held in accounts of all ESOPs or tax credit ESOPs maintained by an employer corporation and by members of the controlled group of corporations (within the meaning of section 414(b), ©, (m) or (o)) which includes the employer corporation shall be considered as held by the same plan.

[Guest oxdougw]

Thank you. The client couldn't put his finger on the answer and I couldn't find it either.

[Kirk Maldonado]

I also think (but didn't verify) that the rule is contained in Notice 88-56.