Need help understanding allocation of shares of Company Stock

[jkharvey]

The Plan Document says that the company stock account of each participant shall be credited as of each anniversary date w/ the Particiapnt's allocable share of Co. Stock purchased and paid for by the Plan. This is not a leveraged ESOP.

My question involves the definition of "allocable share". Suppose the ER makes a cash contribution of 150,000 that is allocated based on comp to comp. Let's say that the ER purchases $150,000 of ER stock. Do I allocate the stock to the Participants in the same manner as the ER contribution that year or is it based on the ending balance of ER accounts?

[stephen]

It seems to me if the contributions are allocated comp. to comp. and the employer is making $150,000 in stock contribution to the plan that the stock would be allocated comp. to comp.

[Alf]

The plan document is required by law to provide for definitely determinable allocations. Allocations based on account balances are not safeharbor and will be discriminatory.

[jkharvey]

I don't think I was very clear and I apologize. The document clearly says that contributions are allocated comp to comp. My question comes in as to how to allocate the stock that is purchased with the cash that is contributed as the contribution.

[stephen]

If the $150,000 contribution was used to buy shares you could allocate the cash comp. to comp. and then use the contribution cash to purchase the shares OR use the cash to buy the shares and then allocate the shares. It is probably easier administratively to do the latter.

[Locust]

It depends upon what the Plan says, and the part of the plan you quote seems ambiguous. You'd have to look at the company stock section and the allocation section of the Plan.

If the contribution is cash, the cash is allocated as a contribution (pro rata on compensation). Then, the cash in the Plan can be used to purchase the stock.

Then it depends on what the plan says about company stock - is it allocated to each pt's account, or is it held by the plan in the aggregate.

If it is allocated to each pt's account, which is normally what you have in an ESOP, the stock would be purchased by each pt's account pro rata on the basis of cash in the participant's account to total cash. If the participant had 10% of the plan's cash (after the allocation of cash) it would receive 10% of the stock and the account would be reduced by 10% of the purchase price (in your example, $15,000). It is more complicated if the plan assets include stock, cash and other assets - hopefully there would be direction from the plan document.

If the contribution is stock, the stock is allocated as a contribution (pro rata on compensation).

[Guest gsi miami]

2 questions:

does anyone administer an esop with a points formula based on service for the contrib alloc?

if so, then that answers the 2nd q that it is allowable.

there must be a safe harbor formula to use (?)

i see the asppa c-4 text does say the general test is allowed in an esop. is the safe harbor points alloc the same as in a p/s plan?

thanks

[BeckyMiller]

To GSI - ESOPs are not eligible for any of the "safe harbor" formulas. Go into the 401(a)(4) regulations and search by ESOP and you will find a lot of parenthetic notes about "other than ESOPs."

You can do a creative formula to allocate ESOP contributions but it must satisfy nondiscrimination without regard to any safe harbor, without imputing social security, etc.

[CTipper]

Becky

I never thought about this before.

You can't have a class allocation or age weighted plan in an ESOP? It was not something I'd ever paid attention to until I came across this while looking for something else.

Thanks

Christopher

[BeckyMiller]

Becky

I never thought about this before.

You can't have a class allocation or age weighted plan in an ESOP? It was not something I'd ever paid attention to until I came across this while looking for something else.

Thanks

Christopher

Just to clarify for Christopher. ESOPs do not qualify for any of the safe harbors. They can have allocation formulas that are based on something other than simple compensation to compensation. It is just that they have to be tested for nondiscrimination without the benefit of any safe harbor or permitted disparity.

[CTipper]

Becky

Sorry, you're right. I completely misread what had been posted. My apologies.

Christopher

[BeckyMiller]

Becky

Sorry, you're right. I completely misread what had been posted. My apologies.

Christopher

Not a problem - communicating in this format is easy to mess up. I was as concerned that I was stating this in a manner that was understood...

Becky