Our companys ESOP Plan defines Credited Service as "The number of Plan Years in which an Employee is credited with at least 1,000 Hours of Service, including one year of credited service for each three full twelve consecutive months of Service prior to the Effective Date."

Do the years of credited prior service count as years of participation for 10 year and age 55 participation requirement on the diversification provisions of the Plan?

Probably not.

"Years of participation" for purposes of the ESOP diversification requirement of IRC Section 401(a)(28)(B) may be limited to years of "active participation." This generally means years in which the participant is entitled to accrue a benefit (receive an allocation of employer contributions, if any) under the ESOP.

The definition of "Credited Service" under your ESOP is likely used for purposes of determining participants' vesting. Someone will have to interpret what standard the ESOP uses for determining "participation" for diversification purposes.

If it's not clear in the ESOP document, the lawyer who drafted the ESOP and the parties at the company who were involved with the design of the ESOP should be asked what was intended. It may be necessary to amend the ESOP to clarify this matter.

[This message has been edited by RLL (edited 04-21-2000).]