Ask the Editor: Can We Have a 401(k) and an ESOP?
Question: In your November-December 2006 issue you said an ESOP is a “defined contribution retirement plan.” If this is so, can a company that has a 401(k) plan also do an ESOP?
Jerry Shirley
National Graphic Supply
Answer: Yes, a company that has a 401(k) plan also can have an ESOP. All that is required is for the company to adopt an ESOP component. This is done by simply amending the 401(k) plan document to include an ESOP profit-sharing feature.
Total contributions per participant for both plans are limited to $45,000 (or $50,000 with a catch-up contribution). Plans having non-leveraged ESOP arrangements can experience positive cash flow benefits, because ESOP stock rather than cash can be used to make the employer retirement contribution.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
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