FAQ 14: ESOP--Handling a cash distribution from an ESOP plan


We're trying to do an 80% cash distribution to a participant in an annually-valued ESOP plan. As of the last plan year end, there was not enough cash in the plan to pay for the shares that are to be liquidated to make the cash distribution to the participant. Since the plan year-end, dividends and interest have come in that satisfy the cash requirement. To make this cash available in the plan, a "Mr. Cash" was created with the amount of income that has occurred.

Since we are not paying 100% out, we chose the option to sell shares so that we could control the amount. However, when the transactions are created, they are only being created for the participant for whom we are creating the distribution. Shouldn't there be transactions for the other participants (transfers out of cash, at least)? What process would you recommend following in a case like this?


You wouldn't want to use the "Sell Shares" option, since that sells shares only for the participant status codes that have been selected (in this case, just this one person), and buys those shares from the cash that that participant has. Instead, you would want to use the "Sell Shares for Terminated Cash Distribution" option. That option will then create the following transactions:

Selected Participant (i.e. the person that you want to distribute; you will be prompted for
the name):

1) A transfer out of the stock fund of the number of shares that need to be liquidated to facilitate the distribution.
2) A transfer into the cash fund of the shares times the share price.

Active Participants:

1) A transfer out of the cash fund for his or her portion of the shares that are being purchased.
2) A transfer into the stock fund for the amount of shares that the cash would buy at the input share price.

Once some of the shares had been sold to facilitate the distribution, you could then either input the withdrawal from the cash fund for 80% of the account balance, or you can have the routine create the withdrawal transaction for you as well.