How an ESOP gets an asset other than ER Stock

[jkharvey]

I am not very familiar w/ the ins and outs of ESOPs but it looks like (against my recommendation) our firm will begin administering a leveredged ESOP. I have a question regarding other assets in the ESOP. The question sounds very strange to me because I know how it would work in a non ESOP 401(a) plan but I'm wondering if there is something different for an ESOP. The employer established a savings account to be used for making distributions. The account is in the name of the ESOP. The prior TPA has not accounted for this asset on Form 5500 as a plan asset (I don't think that is correct). My question is this. Don't the contributions to this savings account have to be counted as employer contributions and be allocated to participants? Is there some ESOP provision that would allow for this type of account to exist by the ER simply depositing money into the account and not having to allocate that money?

[GMK]

As always, check what the plan document says, but generally contributions to an ESOP are to be allocated when contributed.

[jkharvey]

As always, check what the plan document says, but generally contributions to an ESOP are to be allocated when contributed.

Thank you. Is there actually some provision in the code or regs that would allow a plan document to provide otherwise?

[Guest tmills]

If the employer established the account outside of the ESOP as a sinking fund account to fund distributions, then of course the way it was handled is correct. That is not very likely though. A key question to ask the employer is did they deduct funds placed in the savings account as plan contributions? If yes, then the funds have to be allocated and on the 5500. The plan should contain provisions for using the cash in participants accounts to buy the shares of those receiving a distribution.