IRS Said to Be Set to Require Written Distribution Policies

The IRS is going to require ESOP companies to submit written distribution policies, whether in their plans or as separate documents, according to ESOP attorney Larry Goldberg. Goldberg and other ESOP attorneys have been working with the so-called "ESOP Cadre" at the IRS on issues concerning the letter or determination process. Until this year, the IRS has reviewed plan documents simply to assure that the maximum payout terms were specified. Many ESOP companies either do not have such policies or have only rudimentary ones. Currently, ESOPs must submit their plan documents for new letters of determination in the five-year cycle for resubmission of plans. While the language can be included in the plan document itself, any changes the company might want to make would require a plan amendment. Most advisors agree a better approach would be to write the plan to allow for the maximum amount of time for distributions to be made, leaving the details of benefit distribution planning to be spelled out in the ESOP distribution policy. The policy might, for instance, provide for more liberal distribution rules, provided this is done in a consistent and non-discriminatory manner specifically detailed in the plan.

Coincidentally, the NCEO has been working to develop an issue brief with sample distribution policies, detailed comments, a description of the requirements for distribution, and further suggestions on other language such policies might have. The brief, titled ESOP Distribution Policies: Sample Policies and General Considerations in Crafting an ESOP Distribution Policy, is now available at $15 for NCEO members and $25 for nonmembers.