ESOP Diversification Timing Requirements for Closely-Held Companies

[Guest CRC]

I am interested in learning how closely-held companies are meeting the timing requirements under the ESOP diversification rules, when the company's annual valuation is completed much later than the dates by which the diversification requirements should have been satisfied.

For example, is a prior year's valuation used? If so, is the diversified amount later modified to tie with the most recent valuation? Are companies tying the 90/90 day requirements to the date the valuation is completed, rather than the plan year end or considering the 90/90 day provisions as "safe harbor" provisions rather than a strict requirement? What other methods are companies using to comply? Thank you in advance for your input.

[RLL]

Are you saying that you cannot complete the process within 180 days after year-end, as required by IRC Section 401(a)(28)(B)(ii) ? Why not just get the valuation completed earlier ?

[Guest CRC]

It is not uncommon for the valuation to run into the fifth or sixth month following year end. And in this case, the valuation has still not been finalized.

[RLL]

CRC ---

You can utilize one of the IRS "correction" programs to cure the qualification defect resulting from failure to comply with the 90 day/90 day requirement of IRC Section 401(a)(28)(B)(ii).