IRS Encourages Prototype ESOP Document Language

In June the IRS announced that it will allow prototype and volume submitter ESOP plan documents. At the same time, it also issued sample plan language for ESOPs. The IRS hopes not only to reduce its own costs in reviewing plan documents but also to reduce the costs to companies considering ESOPs by avoiding custom-created plan documents.

In Revenue Procedure 2015-36 (PDF), the IRS allowed ESOPs that meet certain requirements to qualify for pre-approval for initial and cyclical letters of determination if they adopt a prototype plan or volume submitter plan. Under a prototype plan, an employer can adopt a plan from a "sponsor" (here meaning the sponsor of the prototype, not the ESOP company) that is preapproved, or can use a plan submitted by a volume submitter.

The implications for the cost of adopting an ESOP is still unclear, and the NCEO will continue to report on developments as ESOP experts analyze the implications of this announcement.