Frequently Asked Questions

Employee Ownership FAQs

Common questions about employee stock ownership plans (ESOPs), employee ownership trusts (EOTs), and other forms of employee ownership, from the basics to technical topics.

This FAQ is written primarily for business owners, managers, and advisors involved in setting up or running an employee ownership plan. If you're an employee at an ESOP company looking to understand your own benefits and rights, see our articles on Working at an ESOP Company and The Rights of ESOP Participants.

NCEO employee ownership FAQ hero (keyboard)

What should we do if we face an excess contribution under Section 415?

If the excess is because of a combination of ESOP contributions and 401(k) salary deferrals, one corrective approach is to have those affected first take a refund of 401(k) salary deferrals that were not matched so they can receive the full ESOP contribution.

If the problem is solely from employer contributions, the best approach (if your plan provides for this) is to reallocate the excess to other accounts. You could credit those affected with any lost benefits under a nonqualified "section 415 excess plan" but this may be too troublesome unless you already have such a plan in place.

If there is no reallocation provision, the excess must be removed from the participant's account and applied to reduce future employer contributions. (It may not be returned to the employer.) The excess in a leveraged ESOP could be put in a suspense account to be allocated the following year to all participants.

Link to this FAQ Topic: ESOP Plan Design & Participation