Jump to content

S-ESOP - excludable stock / permanence


Recommended Posts

Questions regarding a proposed S-ESOP structure. Individual X owns 100% of Corporation Y and 5% of Corporation Z, each an S corporation. ESOP, which forms a portion of Corporation Y's 401(k) plan (the KSOP), owns the other 95% of Corporation Z. Corporation Z will have two officers but no other employees, although some of the services provided by Corporation Y employees benefit Corporation Z. Plan participants will receive a non-discriminatory discretionary employer contribution and will be given a one-time election to invest the contribution in Corporation Z stock. Afterward, participants may not enter or exit the stock fund except upon a distribution event or to satisfy ESOP diversification requirements. No participant will own 5% or more of Corporation Z through the KSOP.

1. Does the KSOP meet the requirements of an exempt employees' trust under section 1.1563-2(b)(4) and section 1.414©-3©(2), which would mean that the ESOP stock in Corporation Z is excluded and would make Corporations Y and Z members of a controlled group? Might Corporations Y and Z be treated as a single employer for this purpose?

2. If future contributions are not made to the ESOP portion of the plan for several years after the initial contribution, but substantial and recurring contributions continue to the 401(k) portion of the plan, has the permanence requirement of 401(a) been satisfied?

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...