Replacement of a profit sharing plan may be accomplished in either of two ways. One approach is to "amend and restate" the profit sharing plan as an Employee Stock Ownership Plan. If a profit sharing plan is "amended and restated" as an ESOP, part or all of the prior funds may be used to purchase employer stock. However, in order to eliminate any risk of fiduciary liability, we strongly recommend that prior profit sharing funds not be used to purchase employer stock, since profit sharing funds remain subject to the requirement that they earn a "fair rate of return." A second approach is simply to "replace" the profit sharing plan with an ESOP. Under this approach, the profit sharing plan remains as a separate "frozen" plan.

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