Must a new valuation be done for an ESOP plan termination?

[Richard Anderson]

A small closly held employer with a non-leveraged ESOP wants to terminate the plan before this year end, and begin distributions immediately. It is a calendar year plan. Must a new stock valuation be done, and if so, what date is the valuation for? The termination date?

[RLL]

The answer to your question depends upon the manner in which the termination of the ESOP will be effected.

Will the benefit distributions be made from the ESOP in shares of company stock or in cash? Is the employer prepared to provide "put options" to the distributees? Or does the employer intend to repurchase shares from the ESOP in connection with the termination? Are there any "material" events which are likely to have affected the value of company stock since 12/31/99? Is there an independent fiduciary for the ESOP?

[Richard Anderson]

RLL,

Participants have the choice of cash or stock distribution, and they are expecting some employees to elect cash and others stock. The employer is prepared for the put options. The employer will purchase shares from the ESOP in order to cover those employee who choose cash distributions. There have been aquisitions during the year that may affect share value. There is no independent fiduciary.

[RLL]

At a minimum, you'll need a valuation by an independent appraiser as of the date the employer purchases company stock from the ESOP in order to comply with ERISA Sections 3(18)(B) and 408(e). In order to comply with ERISA Section 404(a)(1), there should be an independent fiduciary for the ESOP.