[Code of Federal Regulations]
[Title 29, Volume 9]
[Revised as of July 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 29CFR2550.407d-6]

[Page 490-491]
 
                             TITLE 29--LABOR
 
CHAPTER XXV--PENSION AND WELFARE BENEFITS ADMINISTRATION, DEPARTMENT OF 
                                  LABOR
 
PART 2550--RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY--Table of Contents
 
Sec. 2550.407d-6  Definition of the term ``employee stock ownership plan''.

    (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 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

[[Page 491]]

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]