The following is not meant to be legal advice.
What are employee stock ownership plans (“ESOPS”)? They are tax-qualified retirement plans that must satisfy qualification requirements set forth in the U.S. Internal Revenue Code of 1986. There are requirements on minimum coverage and minimum vesting standards.
Minimum vesting means one of two minimum vesting schedules: (1) 100% after three years of service or (2) a graded schedule requiring 20% vesting after two years of service, and 20% additional vesting over each of the next four years of service, reaching 100% at six years.
With respect to minimum coverage, an ESOP must cover a sufficient number of employees to satisfy either a ratio percentage test or a nondiscriminatory classification test. For example, the ratio percentage test requires that the percentage of the employer’s non-highly compensated employees covered by the plan be at least 70% of the percentage of highly compensated employees covered. In 2007, highly compensated are those earning in excess of $100,000.
There are many specifics relating to ESOPs that the attorney working with benefits should become aware of such as trading, diversification, and other issues. A relationship with a company transfer agent may produce fruitful resources on the subject.
.jpg)
Comment Preview