How is company stock allocated to participants in a leveraged ESOP?
Shares acquired by a leveraged ESOP are initially held in an unallocated suspense account within the ESOP. As the loan is paid down, the shares are released from the suspense account and allocated among participants as described in Question 18. The release from suspense must satisfy one of two alternative formulas specified in IRS regulations, which require release in proportion to either (i) principal paid on the loan for the year, or (ii) total principal and interest paid on the loan for the year. Dividends on shares held in a leveraged ESOP may also be used to pay down the loan. In that case, company stock equal in value to the dividends paid on the allocated shares in each participants account must first be allocated from the released shares before the remaining shares released from suspense for the year are allocated.
Shares acquired by a leveraged ESOP are initially held in an unallocated suspense account within the ESOP. As the loan is paid down, the shares are released from the suspense account and allocated among participants as described in Question 18. The release from suspense must satisfy one of two alternative formulas specified in IRS regulations, which require release in proportion to either (i) principal paid on the loan for the year, or (ii) total principal and interest paid on the loan for the year. Dividends on shares held in a leveraged ESOP may also be used to pay down the loan. In that case, company stock equal in value to the dividends paid on the allocated shares in each participants account must first be allocated from the released shares before the remaining shares released from suspense for the year are allocated. Return to the top of the page.