Are annual contributions to the ESOP mandatory?

Though not mandatory, the IRS requires that recurring contributions be made to a tax-qualified retirement plan to maintain qualified status.

Although annual contributions are not mandatory for each year, the IRS does require that recurring contributions be made to a tax-qualified retirement plan to maintain its qualified status. However, in a leveraged ESOP, employer corporations need to commit to contribute enough cash each year to service the ESOP loan debt. If the ESOP has sufficient cash to pay the ESOP debt, additional contributions are not required. In some instances, it may be wise to make contributions in excess of the required ESOP debt payments to accumulate cash in the ESOP for years in which cash flow may be restricted.