smm Posted April 3, 2001 Posted April 3, 2001 Can a non-leveraged ESOP be subject to an option to sell shares to an unrelated third party in the future? The option could state that the price would be the fair market value at the time. Currently, the unrelated third party is not a party in interest or a disqualified person, but over time, may acquire an ownership interest to be considered one. Section 54.4975(B)(4) precludes a call with respect to shares acquired with an exempt loan. What if the ESOP is non-leveraged? I am uncomfortable with the concept, but other than general prohibitions, cannot locate anything specific. Any thoughts?
RLL Posted April 3, 2001 Posted April 3, 2001 smm --- An ESOP fiduciary who entered into such an agreement is likely violating section 404(a)(1) of ERISA. As an ESOP must be "designed to invest primarily" in employer stock, a fiduciary would not be fulfilling its statutory duty to acquire employer stock for the benefit of participants if it entered into an agreement which might force the ESOP to give up its entire ownership interest in employer stock. By the way, what's the ESOP getting in return for giving the call option?
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