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ESOP Releveraging

"[R]edemption and subsequent releveraging are solutions to fund required obligations and create new stock allocations. Plan sponsors should be aware of increased scrutiny by governmental agencies with respect to new ESOP transactions. It is probable that the reporting new indebtedness on the annual Form 5500 filing may trigger an audit. In the event of audit it is critical that the required documentation is in place including the updated valuation of the privately held company stock."

Communicating Your ESOP

"Here are three practical ideas to make more of your annual statements: [1] Include ownership information and a 'how to read the statement' handout with your mailing.... [2] Hold a webinar to review the annual statement and ESOP results.... [3] Hold live meetings to build ESOP and business knowledge."

ESOP Repurchasing Strategies (PDF)

"Understanding the available options to satisfy repurchase obligation can ensure the plan sponsor is using the appropriate strategy in the current life cycle of their ESOP. Working through a repurchase obligation study can not only educate a new or old ESOP company to understand the ins and outs of repurchase liability, but it also gives them a sense of comfort they have done their due diligence as a plan sponsor to ensure the sustainability of the ESOP and the current plan design is supporting their corporate goals."

The Nuts and Bolts of ESOP Loans (PDF)

"There is a very high probability an ESOP will be leveraged during its lifecycle. When this leveraging occurs and the ESOP takes on debt to acquire company stock, a number of legal documents are drafted to record the terms of the transaction and the requirements of the involved parties. As the TPA of an ESOP, it is important to understand the reason these documents exist and the differences between ESOP internal loans versus external loans."

Cash Flow Required to Fund an Internal ESOP Note

"With an ESOP Note payment, the Company makes a contribution to the ESOP for the ESOP Note payment. The ESOP then makes the internal loan payment by transferring that money back to the Company.... [A] 2010 Technical Advice Memorandum states that this cannot be handled with a journal entry and cash must be transferred to facilitate the ESOP Note payments. What this means is that the ESOP Note payment schedule must be designed so that it does not conflict with cash necessary to make the Company Note payments or other cash flow requirements."

Annual ESOP Statements: Carpe Diem

"Your annual ESOP statement gives you a terrific opportunity to make the most of employee ownership. Seize it by implementing these seven practical suggestions to increase understanding of your ESOP, strengthen your company's culture, and promote employee ownership as a powerful tool for improved performance and employee retention."

Variance in ESOP Benefit Levels

"When comparing ESOP benefit levels there is variance across all ESOP companies and even within the same ESOP company from year to year. This article is intended to highlight the key factors that contribute to benefit levels and provide reasoning for the variance."

Study Shows Great Success with ESOP Acquisitions

"[A]ll 20 ESOP executives had completed a total of 442 acquisitions and only 12 were unsuccessful, which is a 97.5% success rate. In addition, every ESOP acquirer hired 90-95% of all of the target company employees ... The strongest effect was the relationship of a Shared Vision to Organizational Empowerment. This indicates that for a successful acquisition to occur, both the acquiring and target companies need to have a common shared vision for their future together[.]"

ESOP Loans: Internal vs. External

"Having separate loan transaction documents allows the Plan Sponsor more repayment and refinancing flexibility.... In addition, the company can have a much shorter loan term on the external loan in order to remove debt from the company's books and, in a seller financed transaction, pay off a selling shareholder without impacting the share allocation in the ESOP. It is common, for example, to see internal ESOP loans with terms of 15 to 30 years while external loans have terms of 5 to 7 years."

ESOPs and 401(k) Plans: Coordination Tips for Administrators

"[F]or ESOP providers, the [408(b)(2) regulations] require that there be a specific written agreement outlining the scope of work, direct and indirect compensation, termination compensation, and manner of receipt. Investment entities, brokers, and their fiduciaries that hold plan assets (such as the investments from an ESOP non-stock account) must provide information on fees and expenses related to the investments.... When you provide more than one qualified plan to your employees, plan administration should be done in harmony. The delivery of compliance services should be seamless."