Diversification Timing Requirements and EPCRS
February 21, 2007

Last week I talked about the diversification disclosure requirements. The latest ESOP Law Blog post expands on the problem that a privately held ESOP faces when trying to comply with the timing requirements: The annual stock appraisal may not be completed by the end of the 2-90 day periods after the end of the plan year. As discussed in my previously-mentioned post, I am not aware of any plans that have experienced any problems when they have sent the final diversification disclosures as soon as administratively feasible after receiving the final amounts eligible to diversify. Nonetheless, the plan is still violating the diversification requirements of IRC Section 401(a)(28).

The ESOP Law Blog suggests using the Self-Correction Program (SCP) of the Employee Plans Compliance Resolution System (EPCRS) as a possible solution. We have recently discussed the SCP and EPCRS, including twice this week, in the following posts:

Rules and Regulations/EPCRS/IRS 2007 Dirty Dozen Tax Scams

Winter Edition of Retirement News Winter Edition of Retirement News for Employers: Notice 2007-07/PPA Information Page/T.D. 9294 Use of Electronic Media/Automatic Rollover IRAs/Lost Participants/Terminating Plans/Payroll Deduction IRA/Self-Correction Program/401(k) Checklist/DOL News/IRS Form 5558/2007 IRS Tax Calendar/Upcoming Deadlines

Employee Plans Compliance Resolution System (EPCRS)

By using the SCP and making the payments as soon as administratively feasible, the participants will most likely be in the same position that they would have been in had the violation not taken place. The post also raises other concerns, including the lost earnings opportunity and whether the violation was really inadvertent. The post concludes with the following: “Perhaps, given the commonality of this problem, the IRS will one day provide additional guidance to ESOP companies.”