Financial Audit Disclosure

[JRN]

Is the ESOP repurchase liability a "future obligation of pension benefits" item that should be disclosed on the Employer/Plan Sponsor audited financial statements? My initial thought is no -- the ESOP is not a defined benefit pension plan where the employer is obligated to contribute sufficient cash to fund future promised pension benefits. The ESOP is, of course, a defined contribution plan with individual accounts and each participant's retirement benefit simply equals what has accumulated in his or her account. But, the unique nature of the Employer's obligation to at some point convert the participants' interests in company stock into cash makes me think my initial conclusion might not be right.

Thanks.

[Marcus R Piquet]

FAS 150 does not apply to the sponsors of ESOPs IF they report in accordance with SOP 93-6.

[BeckyMiller]

Marcus is referring to an accounting standard that considered the proper classification of securities that have the attributes of both debt and equity. That standard is on hold for private companies with a specific FASB staff position on securities of ESOP companies. The reason is came up is because of the mandatory put option for ESOP shares that are distributed and the cash flow obligation for ESOP trustees where the plan does not intend to distribute stock. That is the repurchase "obligation." With SFAS 150 frozen for now, there is no other GAAP standard that requires the recording of the repurchase obligation. The language that JRN is using is more like a defined benefit plan under SFAS 87 / 158. As a defined contribution plan, ESOP sponsors are not currently required to go there.

If this is a potential area of concern for you or your client, keep an eye on the FASB projects with an eye to puttable (sp?) securities or "mandatorily redeemable" securities.