ESOP Termination Post-Acquisition - Distributions in Cash Only?

Is there a specific exception to the rule that an ESOP participant must have the right to receive a stock distribution that applies to an ESOP termination related to a merger/acquisition?  I feel like I've seen this before, but can find nothing on it.

Here's the situation - ESOP plan sponsor was acquired in a stock purchase transaction and merged into the buyer. ESOP was terminated prior to the close of the transaction. Stock of plan sponsor was exchanged for stock of buyer. Question has arisen as to whether the shares owned by ESOP can be liquidated following the plan termination and all plan participants paid distributions in cash?

Thanks in advance for any insight.

I'm not an ESOP aficionado (there is an ESOP Guy who regularly contributes in this forum) but I know you do not need to offer shares at distribution and limit share ownership to employees only if corporate bylaws provide for such.

I have never heard of this being a problem before.  There are a lot of exceptions to the stock distribution rule.  All S Corps don't have to allow it for example. 

I have seen plenty of amendments that terminate an ESOP turn them into profit sharing plans as part of the amendment.  Although that seems to be in plans where the share were bought from the ESOP as part of the transaction.  ESOP are required to be primarily invested in stock and once they go 100% cash that isn't true.  

I know trustees and Plan Administrators have a lot of discretion on how the assets are invested.   You can force terminated employees out of the stock as a matter of regular practice in an ESOP.  

I can't think of a cite but I don't see it as a barrier.  

There are some lawyers that hangout here with deep ESOP knowledge also  They might comment for you with a cite.  

I believe that if you dig into the 411-d4 regs that contain the ESOP exceptions to the anti cutback rules you will find and "example 3" that allows a stock bonus plan to distribute in cash in such an event.  Practitioners that follow this exception do so by taking the position that by definition an ESOP is a stock bonus plan that contains and complies with those IRC provisions listed in IRC 4975.  Others who have not read the regs (my only guess as to why they take this other position) believe that the ESOP exception in IRC 409 that allows ESOPs to "modify" their forms of distribution in a nondiscriminatory manner extends beyond those regs.  I dont buy that.

Amending into a PSP still requires relying on this approach.  The PSP restatement is to avoid the "primarily invested" standard for sn ESOP post transaction