Because ESOPs represent such a significant part of our practice, we wanted to share with you the benefit of our special expertise in ESOP issues. We welcome your comments and suggestions. The sale of unallocated stock by a leveraged ESOP for a premium can lead to unexpected problems, including possible plan disqualification.
Careful planning is essential to avoid surprises.
An ESOP sponsor called recently with great news for the employee-owners of the business. Even after the remaining acquisition loan was paid off, each of the participants in the ESOP would receive a very large benefit. Management of the business and the fiduciaries of the plan were delighted that the plan was producing this kind of benefit for the company's employees. They said the plan would be terminated immediately after the sale, the acquisition loan would be paid off and the benefits distributed to the employees. They asked us, almost nonchalantly, if there were any pitfalls of which they needed to be aware.