Convert Former Participant's Accounts to Cash / Stock buy-back

[Guest DDahl]

Is an ESOP holding shares of an S-Corporation permitted to convert the accounts of former participants into cash immediately upon the participants' termination of employment eventhough the participants aren't entitled to distributions for five years?

In 2000, there were two posts on the message boards which dealt with this issue. However, at that time, the only guidance in the area seemed to be a 1999 article in the Journal of Taxation, but no IRS guidance. I was told that the IRS had issued guidance with regard to the above issue sometime in the last few years. Is anyone aware of this guidance?

I understand that many ESOPs have included similar force-out provisions on the reliance of their favorable determination letters. I've also learned that this issue has twice been the topic of breakout sessions during the annual ESOP association meeting.

Can anyone help bring light to this issue?

[Guest tmills]

According to Sal Tripodi, the IRS issued an unnumbered TAM in 2002 about this subject. I have tried to find it with no luck. However, no where did Sal say it couldn't be done. Hopefully another responder can provide more information.

As you stated, I think most people rely on their documents that have the cash-out provision in them and a favorable letter.

[Guest DDahl]

According to Sal Tripodi, the IRS issued an unnumbered TAM in 2002 about this subject. I have tried to find it with no luck. However, no where did Sal say it couldn't be done. Hopefully another responder can provide more information.

As you stated, I think most people rely on their documents that have the cash-out provision in them and a favorable letter.

Did Tripodi reference this issue in his 5 volume ERISA outline?