Jump to content

Diversification at Discretion of Plan Sponsor

Recommended Posts

Can an ESOP contain a provision allowing the plan sponsor to elect in its sole discretion to diversify a portion of participants' accounts (as long as the diversification is nondiscriminatory and applies equally to HCEs and NHCEs) and buy back the shares? 

I have been unable to find any legal authority on this either way. Maybe I'm overthinking it? I'm aware of the authority on rebalancing participant accounts, but don't believe that would apply here, and most information on buy backs speaks to buying shares from terminated participant accounts only. 

Thanks in advance.

Link to comment
Share on other sites

The IRS's guidance on rebalancing and reshuffling is helpful on the diversification piece.

As far as buying back shares following a reshuffling or rebalancing, the plan sponsor can always redeem shares out of the ESOP trust. A current valuation would be required (as would trustee approval) as the plan sponsor is buying shares directly from the ESOP trust, but it's certainly possible. The trust just ends up with a larger proportion of cash compared to employer stock. If there are other non-ESOP shareholders, their ownership percentage would be increased; if not, there are simply fewer shares outstanding. 

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Create New...