ESOPs

[Guest Edward McElroy]

If plan sponsor of $100,000,000 ESOP sells a subsidiary for $50,000,000, can plan sponsor contribute entire amount as a dividend and release approximately 50% of stock in suspense account without Code Section 415 concerns? Or would amounts need to be paid out over several years in light of Code Section 415 limitations? Any thoughts? Thanks.

[Dawn Hafner]

Dividends are not generally not considered to be annual additions or employer contributions, so therefore could in theory exceed 25% of covered compensation. BUT, if the dividend is viewed as extraordinary and evasive by IRS it can be recharacterized as an employer contribution, which could cause violations of Section 415, which in turn would be a plan qualification issue.

[Guest ERead]

I agree with Dawn - however - I'm more concerned with the "release 50% of the suspense stock" - are you saying that essentially, the ESOP is going to sell off the $50M in stock, or is it going to allocate that to the participants? I'm not quit sure I understand how you want to sell off the subsidiary corp. You might try posting your message on the NCEO bulletin board, they deal more specifically with ESOP plans. Their web site is "http:www.nceo.org"