An employee stock ownership plan (ESOP) is an IRC section 401(a) qualified defined contribution plan that is a stock bonus plan or a stock bonus/money purchase plan. An ESOP must be designed to invest primarily in qualifying employer securities as defined by IRC section 4975(e)(8) and meet certain requirements of the Code and regulations. The IRS and Department of Labor share jurisdiction over some ESOP features. ESOPs –Anti-Cutback Relief (2013) Notice 2013-17 offers relief for certain ESOP amendments that eliminate a distribution option to meet new diversification requirements. Determination Letter Issues for ESOPs phone forum (October 28, 2011) (transcript PDF) (handout PDF) S corporation stock held by an ESOP - deductions An ESOP-owned S corporation cannot deduct retirement plan contributions for ESOP participants. ESOPs – Definition of readily tradeable employer securities (March 2011) Notice 2011-19 defines when employer securities held by an ESOP are “readily tradeable” Response to Technical Assistance Request #5 (October 8, 2010) PDF Discusses qualification issues presented by plan provisions concerning the mandatory transfer of employer securities to and from participant plan accounts designed to prevent the occurrence of a nonallocation year (within the meaning of IRC section 409(p)(3)). Response to Technical Assistance Request #4 (February 23, 2010) PDF Discusses qualification issues presented by plan provisions concerning the mandatory transfer of employer securities to and from participant plan accounts. Response to Technical Assistance Request #3 (Dec. 9, 2009) PDF Discusses the required timing and substance of IRC section 409(p) amendments. Response to Technical Assistance Request #2 (November 3, 2009) PDF Discusses plan language defining “qualified participant” under IRC section 401(a)(28)(B)(iii). Response to Technical Assistance Request #1 (November 3, 2009) PDF Concludes that ESOP provisions providing for a distribution of stock is subject to immediate, mandatory resale are consistent with IRC section 409(h). Related ESOP determination letter review process Amend or update a plan - Sample plan language for ESOPs Determination, opinion and advisory letters
