Payment of Encumbered Stock

[nancy]

Plan document allows the employer to defer distribution of any stock encumbered by a loan until the loan is repaid. If in some years, the emloyer has sufficient cash to repurchase the encumbered stock available for distribution, does this mean that he has to do so in subsequent years? Does this become a 411(d)(6) issue? Can he decide on a year by year basis? Any help is appreciated.

[RLL]

IRC Sec. 411(d)(6)© allows an ESOP to have some flexibility in making benefit distributions....so long as there is an established written distribution policy which is administered on a nondiscriminatory basis which treats participants in like circumstances in a like manner, as required by ERISA (decisions regarding the distribution policy will be subject to ERISA's fiduciary standards). The ESOP plan document must specifically provide for such benefit distribution procedures.

Please note that the shares available for distribution have already been released from the ESOP loan suspense account and allocated to participants' accounts. Accordingly, they are no longer "encumbered" (pledged as security for the ESOP loan). The shares merely qualify for the delayed distribution provision (applicable to shares purchased with loan proceeds) under IRC Sec. 409(o).