Distribution provisions, timing, etc.

[Belgarath]

This is just a general "design" question

In the limited number of ESOP documents I've ever perused, they seem to generally provide for a 5-year distribution period for funds attributable to company stock. (longer for very large distributions) Several have also required a 5-year break in service prior to the payout even beginning.

Is the purpose of this to protect/cushion the employer/plan from big swings in stock prices -  so there isn't a major cash flow problem due to a high payout, or is it due to other considerations? I assume that if a sponsor CHOOSES to provide for immediate lump-sum, they could do that, even if potentially might be unwise/risky? Any thoughts on this in general?

Also got a question from a CPA on a plan we don't handle - if you have a 5 year payout on a person who has reached NRD, (assume it is over the $5,000 mark) and the person doesn't fill out the distribution paperwork for the first installment,  can the second installment be "forced" including the first missed installment? General question, as I don't have a document to look at anyway...

Thanks.

[Luke Bailey]

Belgarath, I think the concern is cash flow, but it is not even so much swings in price of stock as just having to pay at all under the put option. The company wants to budget its cash obligations.