When and how do Participants get cashed out?

  • The Diversification Election
    • General rule
      • Applies to participants who are age 55 and older and have 10 years of ESOP participation
      • Can elect to diversify up to 25% of their ESOP stock account, for 5 years, then an additional 25% upon reaching the 6th year
    • Election period – first 90 days in each election year
  • Distribution of ESOP benefits
    • Employee right to require distributions of stock (which is rarely activated)
      • Substantially all stock owned by employees or qualified plan exception
      • Subchapter S exception
    • Commencement of distributions
      • Retirement, disability or death – over 5 years starting with the following year
      • Other termination of employment – the same, but subject to a 5-year delay in start (11 years in all)
      • Financed securities exception – no distribution of C corporation stock need be made until debt incurred to acquire that stock has been paid
    • Adequate interest and security required for deferred payments

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