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April 2, 2009

Employee Stock Ownership Plan (ESOP)

Your Guide

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Definition

A defined contribution plan for which the primary investments are employer stocks (stocks of the employer that sponsors the plan).
In order to be treated as an Employee Stock Ownership Plan (ESOP) under the tax code, the plan must meet certain requirements, including the following:
The plan must be formally designated as an ESOP in the plan document.
The plan must specifically state that it is designed to invest primarily in qualifying employer securities. As such, a money purchase pension plan or a stock bonus plan constituting an ESOP may invest part of its assets in other assets ( other than qualifying employer securities).
Referring Cite
ERISA §407(d)(6)(A) , IRC §401(a)
Additional Helpful Information


An ESOP can be part of a defined contribution plan (other than an ESOP)
If an existing defined contribution plan is converted to an ESOP, the fiduciary and exclusive-benefit rules apply to the conversion.
According to 28 CFR 2550.407d-6, a plan constitutes an ESOP for a plan year, only if it meets other such requirements as the Secretary of the Treasury may prescribe by regulation under IRC§ 4975(e)(7)

 

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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