BASIC ESOP ADMINISTRATION - The ESOP Association

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John Burgess - Seyfarth Shaw LLPJonathan Markham – Blue Ridge ESOP AssociatesTop Heavy Test - 416• A company’s defined contribution plans will be considered topheavy if, as of the determination date, the aggregate of the accountsof key employees under the plans exceeds 60% of the aggregate ofthe account balances of all employees under such plans.▫ Certain balances are excluded• Former key employees• Participants who terminated in a prior year• Unrelated rollovers▫ Certain distributions are added back:• Distribution that occurred during the 1-year period ending on thedetermination date• In-Service distributions which occurred during the 5-year period endingon the determination date• If the plans are considered top heavy there is a required minimumcontribution of the lesser of 3% or the highest contribution rate ofthe key employees.
John Burgess - Seyfarth Shaw LLPJonathan Markham – Blue Ridge ESOP AssociatesProhibited Allocation Rule – 1042 –409(n)• If company stock is sold to the ESOP by ashareholder who elected Section 1042 taxtreatment certain participants cannot receive anallocation of assets attributable to those shares▫ During the non-allocation period the sellingshareholder and certain family members cannotreceive an allocation of assets attributable to 1042shares▫ Shareholders holding more than 25% of companystock and certain family members cannot receivean allocation of assets attributable to 1042 shares.
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