(a) In general--(1) Type of plan. To be an ``ESOP'' (employee stock
ownership plan), a plan described in section 407(d)(6)(A) of the
Employee Retirement Income Security Act of 1974 (the Act) must meet the
requirements of this section. See section 407(d)(6)(B).
(2) Designation as ESOP. To be an ESOP, a plan must be formally
designated as such in the plan document.
(3) Retroactive amendment. A plan meets the requirements of this
section as of the date that it is designated as an ESOP if it is amended
retroactively
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to meet, and in fact does meet, such requirements at any of the
following times:
(i) 12 months after the date on which the plan is designated as an
ESOP;
(ii) 90 days after a determination letter is issued with respect to
the qualification of the plan as an ESOP under this section, but only if
the determination is requested by the date in paragraph (a)(3)(i) of
this section; or
(iii) A later date approved by the Internal Revenue Service district
director.
(4) Addition to other plan. An ESOP may form a portion of a plan the
balance of which includes a qualified pension, profit-sharing, or stock
bonus plan which is not an ESOP. A reference to an ESOP includes an ESOP
that forms a portion of another plan.
(5) Conversion of existing plan to an ESOP. If an existing pension,
profit-sharing, or stock bonus plan is converted into an ESOP, the
requirements of section 404 of the Act, relating to fiduciary duties,
and section 401(a) of the Internal Revenue Code (the Code), relating to
requirements for plans established for the exclusive benefit of
employees, apply to such conversion. A conversion may constitute a
termination of an existing plan. For definition of a termination, see
the regulations under section 411(d)(3) of the Code and section 4041(f)
of the Act.
(6) Certain arrangements barred--(i) Buy-sell agreements. An
arrangement involving an ESOP that creates a put option must not provide
for the issuance of put options other than as provided under Sec.
2550.408b-3 (j), (k) and (l). Also, an ESOP must not otherwise obligate
itself to acquire securities from a particular security holder at an
indefinite time determined upon the happening of an event such as the
death of the holder.
(b) Plan designed to invest primarily in qualifying employer
securities. A plan constitutes an ESOP only if the plan specifically
states that it is designed to invest primarily in qualifying employer
securities. Thus, a stock bonus plan or a money purchase pension plan
constituting an ESOP may invest part of its assets in other than
qualifying employer securities. Such plan will be treated the same as
other stock bonus plans or money purchase pension plans qualified under
section 401(a) of the Code with respect to those investments.
(c) Regulations of the Secretary of the Treasury. A plan constitutes
an ESOP for a plan year only if it meets such other requirements as the
Secretary of the Treasury may prescribe by regulation under section
4975(e)(7) of the Code. (See 26 CFR 54.4975-11).
[42 FR 44388, Sept. 2, 1977]
