Diversification Requirements

[Guest CTYSON]

Participants must be allowed to make a diversification election within 90 days following the end of each plan year during their six year election period. The trustee then has 90 days following the expiration of the 90 day participant election period (in other words 180 days after year end)to implement the participant's diversification election.

How do you handle the 90 day/180 day requirement when the stock appraisal isn't available until after both time periods have expired? I suppose you could calculate the number of shares available for diversification but you don't know the value of the shares.

Any help would be appreciated!

[Guest LGoldberg]

No great answer for this problem. However, you might try the following: to comply with the first 90-day rule, provide participants with an election form with the most recent valuation and allocation information available. Let them know the information will be updated before the election is finalized. Then, the participant can make a revocable election, revocable when he or she is informed of the updated valuation and allocation information. Although the election is revocable, at least you have complied with Section 401(a)(28)(B)(i) which requires the ESOP to provide an election within 90-days after the close of the plan year. If you get the valuation before the end of the second 90-day period, you can then permit the participant to "finalize" his or her earlier decision and complete the diversification before the end of the 180-day period.

[Guest CTYSON]

Thanks for the suggestion! It really makes sense!

[Guest KDPINSF]

Question to you CTYSON and LGoldberg: How is it that you both have such detailed information on ESOPs? Have you set one up or are you in the process? Are you service providers?

I'm interested in learning more and AM associated with a firm that advises on valuations and manages the diversified funds received by the seller to the ESOP.

[Guest derek]

the Center for Employee Ownership (i think that is the name), the association for ESOPs is a good place to learn more (a lot more) about ESOPs. They have many booklets, articles, manuals, etc. (and seminars) on ESOPS. I think they are listed as a service provider/organization in the Benefits Link Yellow Pages. If not, do a search for ESOPs and they will surely be found.

[Guest CTYSON]

Derek is right! The NCEO is an excellent resource. Their web address is www.nceo.org. Also, as you check this website for what's new you'll often find links to that website.

I work for a firm that provides administrative services to ESOPS so that's why I have the interest in them!

[Guest LGoldberg]

To CTYSON: In answer to your question, our law firm specializes in the design and implementation of ESOPs. I agree that NCEO, as well as The ESOP Association, are great sources for ESOP information. You may wish to visit our law firm's web site at www.lgklaw.com for additional ESOP information.

[BeckyMiller]

KDPNSF - The National Center for Employee Ownership includes an ESOP candidate interactive option. It goes through a series of question to help decide if an ESOP might fit for your company. It is just the very beginning of the process, but it is a great tool. Their web page is NCEO.org.

The ESOP Association also has great information. They are found at the_employer_owner.org.