McNees Minute: ESOP Companies

Sponsored Content: McNees Minute

The current economic downturn has raised several unique issues for ESOP companies. In order to optimize your cash flow, ESOPs can postpone required minimum distributions for 2020 and delay the commencement of distributions for one year.  Another way to conserve cash is to restructure a seller note or take advantage of the current low interest rates and refinance with a bank loan.   You should also consider whether it would be a prudent fiduciary decision for the company to have an interim valuation as valuations are used to administer the plan and as the value of many companies has changed.

If you have terminated 20% of your employees, you may have triggered a partial plan termination, causing the vesting of the affected participants and increasing the financial obligations of the ESOP. 

Lastly, you would also want to ensure that the downturn and your response to it has not breached your loan covenants, plan provisions, or ERISA. 

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