A company can defer the start of its ESOP distributions until after its loan is repaid. Does this even apply in death, retirement, or disability?

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First, note that this exception applies without question only to shares acquired by an ESOP loan in a C corporation. It is unclear if it also applies to S ESOPs. Most attorneys believe that only a technical drafting error prevents this from clearly applying and recommend incorporating this provision in a plan document submitted for a letter of determination. If the IRS does not object, then they recommend proceeding with this provision. Distributions for other shares (including any shares purchased with a prior loan that has been paid) must follow the standard distribution rules. For shares on which the loan has not yet been repaid, for death, distribution does not have to start right away, but must be completed by the end of the calendar year of the fifth anniversary after death and made to the beneficiary, regardless of the loan status. For retirement, distribution must start no later than the 60th day after the end of the plan year in which the later of these events occur: 1) the participant reaches age 65 or, if earlier, the plan's normal retirement age, 2) the calendar year in which the employee retires, or 3) the 10th anniversary of participation in the plan. (Note: These are general qualified plan rules that apply to all aspects of ESOP distributions, not just the deferral of distributions until after the loan is repaid.) These provisions can create somewhat complex interactions when employees leave prior to retirement age but after 10 years of service. Generally, in these cases, the normal ESOP rule would be trumped by the general rules and require a somewhat earlier distribution to begin.For example, if Sam leaves at age 65, and has been in the plan for five years, but the loan will not be repaid until 10 years after he retires, you have to start distribution no later than 60 days after the end of the plan year he reaches age 70 and has his 10th anniversary of participation in the plan. If, in another plan, Mary terminates at 62, when the retirement age is 65, and has 7 years in the plan, she has to start receiving a distribution not more than 60 days after the end of the plan after reaching retirement age, not when the loan is repaid if it is later than when she reaches 65.In any event, required minimum distributions have to start at age 72 for people with over 5% ownership.If the plan has a retirement date earlier than 65, and the employee retires before reaching that age, the employee must start receiving a distribution at the retirement age. Often, early retirement has a minimum service requirement (15 years, for instance), in which case that service requirement must have been met prior to termination.For more details, see The ESOP Repurchase Obligation Handbook.