Employee Stock Ownership Plans with Closely Held Stock Receive Relief from FASB








The Financial Accounting Standards Board (FASB) published on July 8th a new Accounting Standards Update (Accounting Standards Update No. 2013-09, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefits Plans in Update No. 2011-04) that reaffirms their June 12 announcement to indefinitely defer disclosures that were scheduled to take effect on Form 5500 filings for 2012. These disclosures would have provided certain quantitative information about the significant unobservable inputs used in Level 3 fair value measurements for employer stocks that are not subject to Securities and Exchange Commission filing requirements. Because the Form 5500 filings are posted to the Department of Labor website, which is open to the public, Employers were concerned that the information disclosed would have revealed proprietary information about the company’s benefit plan and could be used to target Employee Stock Ownership Plans for takeover by outside companies.

Even without the added disclosures, a significant amount of information about the company benefit plan is available on the Form 5500, including:

  • The total market value of company stock owned by the plan, even though the Form 5500 need not say what portion of the company is owned by the ESOP.
  • The end-of-year principal balance of any exempt loan debt incurred by the ESOP for the purpose of purchasing stock. It should be noted that if a sole owner sold his stock directly to an ESOP, then, at the end of that year, the Form 5500 would reveal the outstanding balance on that loan, giving readers of the Form 5500 some idea of what s/he was paid for that stock.

In addition, when an audit is required, the Accountant’s Opinion attached to the Form 5500 will also typically show:

  • the number of shares owned by the ESOP (while the website of the Secretary of the State in many states indicates the total number of authorized shares for the corporation);
  • original cost of the shares held by the plan (the amount originally paid, oftentimes to the original owner);
  • the annual employer contribution;
  • benefit payments;
  • interest expense on the debt for the purchase of stock;
  • appreciation in the company stock for the year;
  • maturity date for the debt; and
  • the value of the shares released from encumbrance and allocated to participants.

So, with this information, competitors can estimate a number of other calculations – e.g., the price per share as of the beginning and end of the year; the interest rate used on the ESOP loan; and the annual change in the enterprise value of a company (after adjusting for the principal debt guaranteed by the corporation); and the amount of principal and interest paid to the lender (sometimes the actual seller to the ESOP).

While employers accept some public disclosures as simply the price of doing business and operating an ESOP, the deferral announced by the FASB brought welcome relief. The deferral is effective immediately for all financial statements not yet issued and is expected to be permanent.



Amber M. Lloyd, Managing Member and Owner of RMS, began her career in retirement plan administration and consulting in 1994. She graduated from the University of Kentucky with a Bachelor of Business Administration with high distinction and departmental honors in Finance and over the years has become credentialed as an Accredited Pension Administrator, a Chartered Mutual Fund Counselor designee, a Certified Financial Planner™ certificant, and an Enrolled Retirement Plan Agent. Throughout her 27 years in the retirement field, she has worked on all types of retirement programs, including both qualified and nonqualified plans and often speaks on retirement plan topics. Amber is an active member of the National Institute of Pension Administrators, the ESOP Association (where she currently serves as a VP for the KY Chapter), the National Center for Employee Ownership, the ESOP Marketplace, and the Financial Planning Association (where she currently serves as the Secretary/Treasurer for the FPA of Kentuckiana Chapter Board and was the 2018 President). She is also Past President of the Louisville Employee Benefits Council and former Board Member for Mummers & Minstrels, a local non-profit community theatre group. Amber currently devotes most of her time to new business development, consulting on 401(k), Profit Sharing, and Employee Stock Ownership Plans and heads up the firm’s ESOP Practice Group.


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