my company match my contributions to the 401k with company stock from an ESOP loan. the loan is now paid off and future company matches will be in the form of company stock, but purchase in the market on an as needed basis.

am i still restricted to the diversification requirements of the esop (age 55, 5 years, etc.)? there are no plans for a new loan.

Hi dmj1998 ---

The requirements for the diversification election are not changed merely because the ESOP loan has been repaid. There is no requirement that an ESOP be leveraged.

sorry for leaving this out so long.

i was actually wondering if i could make the diversification features less strict and allow any kind of transfers at any time. would that be possible?

Welcome back, dmj1998 ---

Yes....an ESOP may be amended to make the requirements for the diversification election less restrictive than the (age 55 & 5 years of participation) rules of IRC section 401(a)(28)(B). This is the case whether or not there is an outstanding ESOP loan.

However, if the diversification election is satisfied by distributions rather than transfers, amounts allocated for less than two years could not be withdrawn on an "in-service" basis by a participant with less than 5 years of participation (and there can be no "in-service" withdrawals from a money purchase portion of an ESOP); and amounts diversified within the ESOP (rather than distributed or transferred to another plan) would continue to be subject to the stock distribution option of section 409(h) to the extent of diversification in excess of the section 401(a)(28)(B) requirements.

thank you very much for your help.

Isn't diversification age 55 and 10 years of participation (not 5 YOP.

Hi stephen ---

Yes .....the ESOP diversification election under IRC section 401(a)(28)(B) is required after age 55 and ten years of participation. My first response to dmj1998 merely repeated what he/she had stated.

Actually, this is the first error that I've made in 17 years. Thanks for your correction.