Stock Not Transferred

[Guest Marjorie Rogers]

Any opinion as to whether there is a qualification issue when an employer established an ESOP five years ago, funded the ESOP but none of the funds have been invested in employer securities.

[RLL]

Is the ESOP a stock bonus plan alone or a combination stock bonus plan/money purchase plan?

If it's just a stock bonus plan under IRC Sec. 401(a), there is no need to ever invest in employer stock so long as the benefit distribution rules of Sections 401(a)(23) and 409(h) and (o) are satisfied with respect to employer stock.

A stock bonus plan does not have to be an ESOP under IRC Section 4975(e)(7) to be qualified under Sec. 401(a). It only has to be an "ESOP" to take advantage of the special IRC and ERISA features and tax incentives available only for "statutory ESOPs." The requirement that an ESOP be "designed to invest primarily in employer stock" does not apply to a stock bonus plan which is not an ESOP.

If the plan is not investing in employer stock, why is it designated as an "ESOP" ? Is the plan accumulating cash for a future purchase of employer stock? Is employer stock available for purchase? What is the intent of the sponsoring company? Why was the ESOP established?

If the ESOP includes a money purchase plan, there may very well be technical problems if no employer stock has been acquired after five years. What's going on here?

[Guest Marjorie Rogers]

The Plan is a stock bonus plan. The contributions to the plan have been invested in investments, mostly stocks of other companies. I am not sure why the ESOP was set up, presumably because the owner thought ha might be willing to sell the stock to the plan.