For ESOPs whose stock isn’t publicly traded, the timing rules for diversification have historically been difficult to meet. The law says the plan has to issue notices to participants who are eligible for a diversification within 90 days after the close of the plan year. For those electing a diversification, the plan has until 180 days from the close of the prior plan year to make the payment. Many ESOPs are not able to get the stock appraisal and annual work done in the 90 or 180 days to comply with the law. The industry best practice has always been to issue a preliminary notice within the 90 day window informing a diversification eligible participant of their right to diversify. After the annual work was done, plans would then issue the actual diversification notice and make the payments as soon as feasible thereafter.
