M. John Burgess Published in Compensation and Benefits Review
"Strategies for ESOPs Under the New Diversification Requirements"

Seyfarth Shaw Washington, D.C. partner John Burgess had an article published in the January/February issue of Compensation and Benefits Review. The article discussed the Pension Protection Act of 2006 (PPA) diversification requirements as implemented by the final regulations issued in 2010, and how an employee stock ownership plan (ESOP) becomes subject to the PPA's requirements.

John provides a summary of the rules under Section 401(a)(28) and Section 401(a)(35), as well as prohibition on conditions and restrictions and reinvestment issues. He also discusses transitional issues, including administrative issues, distributions to satisfy section 401(a)(28), reinvestment requirements, and frozen funds and ESOPs with acquisition loans outstanding.

He concludes by noting that "sponsors of ESOPs who are already required to comply with the diversification requirements under Code Section 401(a)(28) may need to be prepared to comply with the diversification rules under Code Section 401(a)(35)." He urges sponsors to start planning for the transition as soon as it becomes aware that the plan will be subject to the new requirements.