Strategies for ESOPs Under the New Diversification Requirements

Abstract

Sponsors of employee stock ownership plans (ESOPs) are already accustomed to satisfying diversification rules under the Internal Revenue Code. However, ESOPs that are sponsored by publicly traded companies may become subject to the more stringent diversification requirements under the Pension Protection Act of 2006 (PPA). This article discusses the PPA’s diversification requirements, as implemented by the final regulations issued in 2010, and how an ESOP sponsor can prepare if its ESOP becomes subject to the PPA’s requirements.