The One-Stop ESOP Blog

Establishing an Employee Stock Ownership Plan (ESOP) is a powerful finance and employee benefit tool. While an ESOP may not be the right fit for every business owner’s situation, understanding the benefits may open the door to a valuable business transition and growth tool you need to consider.

An ESOP is a Qualified Retirement Plan 

ESOP stands for Employee Stock Ownership Plan.  An ESOP is a qualified retirement plan that can be used as a business transition tool and as an employee ownership vehicle.

An employee stock ownership plan (ESOP) is an IRS qualified retirement plan, similar to a 401(K) Plan, that buys, holds, sells company stock, providing employees with an ownership stake in the company, as well as an additional form of compensation directly linked to success of the company. 

•  ESOPs and 401(k) plans are both tax deferred retirement plans that are funded by pre-tax contributions.
• While 401(k) Plans are funded with employer and employee contributions, most ESOPs are funded exclusively with company contributions. This means that most ESOPs are provided by the company at no cost to the employees.
• While 401(k) Plans are invested in stock and bonds and other investments, ESOPs are the only retirement plan that is allowed to be primarily invested in employer securities of the company.
• While 401(k) Plan account values are generally updated on a daily basis based on the results of the stock market, ESOP account values are generally updated once per year. This is because most ESOPs own privately held stock.  Since there is not a stock market for privately held stock, the ESOP trustee has to obtain a valuation from an independent appraiser once per year.
• A leveraged ESOP is the only retirement plan that is allowed to borrow money. It is also the only retirement plan allowed to enter transactions with “parties-in-interest” (e.g. the company, owners).  These special ESOP rules allow ESOPs to be able to purchase stock from the company or owners of the company.

Check out this brief animated video to learn more about ESOPs. 

Did  you know? Employee Owned Companies are 235% Better at Job Retention!  

The portion of a company owned by an S Corporation ESOP is not subject to federal or state income taxation, increasing cash flow and providing the company with a competitive advantage. 

An Employee Stock Ownership Plan (ESOP) is a qualified retirement plan that can be used as a business transition tool and as an employee ownership vehicle.

 The ESOP repurchase obligation or liability is the company’s obligation to buy back shares from ESOP participants according to the company’s ESOP plan document and ESOP Distribution Policy. The ESOP repurchase obligation helps with planning for cash requirements and how to meet bank (or seller) requirements for leveraged ESOPs.

Watch the video below to understand the importance of working with an Administration Provider that includes a repurchase obligation strategy as part of your ESOP road map and long-range planning.

During times of change, senior leaders play a key role as an executive sponsor. According to Prosci’s,  Best Practices in Change Management – 2018 Edition, the greatest contributor to a successful change initiative is “active and visible executive sponsorship”.

An executive sponsor is typically a C-Suite leader who oversees a business unit and is responsible for meeting project deadlines. They oversee projects and keep them aligned with the organization's strategy and direction.

During an ESOP implementation and ongoing support and buy-in, the role of the executive sponsor sets the tone for how employee-ownership is embraced in the organization. 

An employee stock ownership plan (ESOP) is an optimal employee ownership vehicle for a company to provide employees with an ownership stake in the company.    

The IRS has announced the 2019 pension plan limits, including the following:

An ESOP is a Business Transition Tool

ESOP stands for Employee Stock Ownership Plan.  An ESOP is a qualified retirement plan that can be used as a business transition tool and as an employee ownership vehicle.

An employee stock ownership plan (ESOP) is a business transition tool that establishes an ESOP trust to be an ongoing perpetual owner of the company.

What is an Employee Stock Ownership Plan (ESOP)?

ESOP stands for Employee Stock Ownership Plan.  An ESOP is a qualified retirement plan that can be used as a business transition tool and as an employee ownership vehicle:

Building an ownership culture begins with defining and communicating organizational purpose and values, tying them to your performance management process, and rewarding employees for their contributions. Building a People Strategy around your ideal culture will generate change.

Part 2 of a 3-part series