Employee Stock Ownership Plans (ESOPs) are a great way for companies to reward their hard-working and dedicated employees.
An ESOP is an employee benefit plan that is created when a company sets up a trust fund into which it contributes new shares of its own stock or cash to buy existing shares. The ESOP can also borrow money to buy new or existing shares, with the company making cash contributions to the plan to enable it to repay the loan.
Shares in the trust are allocated to the employees. When employees leave the company, they receive their stock, which the company must buy back from them at its fair market value. Private companies must have an annual outside valuation to determine the price of their shares.
The administration of ESOPs can be very complex. The employees at Retirement Management Services have extensive experience with Employee Stock Ownership Plans and are happy to help with yours.
Repurchase Obligation Studies
Retirement Management Services provides quality repurchase obligation studies for our clients, by partnering with ESOP Economics, who we believe is the leading provider of repurchase obligation software. Our joint process is seamless and works as follows:
- RMS provides ESOP Economics with almost all of the necessary data for the study, with the exception of a questionnaire that RMS and ESOP Economics work jointly with the client to complete related to financial and demographic assumptions. To make the data review even more efficient, RMS also provides ESOP Economics with an "Executive Summary" of the ESOP plan document and provides details about the plan’s current administrative practices to ESOP Economics.
- RMS stays involved throughout the process by answering questions about the data, assisting in the development of assumptions, if appropriate, and participating in discussions related to projection results and potential alternative strategies for managing the repurchase obligation.
- RMS provides one bill to the client for the entire project, which includes the cost of services provided by ESOP Economics.
- Upon completion of the repurchase obligation study, ESOP Economics provides the client with a free 30-day trial of their web-based Telescope software with data already loaded. In addition, they provide reduced subscription fees for any clients that want to have permanent access to the software to run additional “what if” scenarios or the flexibility to update the study in future years.
For more information or a quote for a study for your ESOP, please contact us.
ESOP FEASIBILITY STUDIES
RMS can perform an ESOP feasibility study that provides a “decision package” for business owners to use in making an informed decision regarding establishing an ESOP. This study helps decision makers determine if, and to what extent, the ESOP can assist the owner(s) in achieving a desired objective. The study will:
- Help educate the owners and management on what you can and cannot do with an ESOP;
- Explain the advantages and disadvantages of ESOPs;
- Help management to develop long-term assumptions for our projections;
- Determine if the company has adequate payroll for ESOP participants to make the ESOP contributions deductible;
- Provide estimates of what the repurchase obligation will be and how the company will handle it; and
- Recommend the best plan design for the company.
The purpose of an ESOP feasibility analysis is to give the selling shareholder(s) and management of the employer the information needed to determine whether to move forward with an ESOP installation transaction. Further, the results of the feasibility study enable the employer and the selling shareholder(s) to structure a transaction that is beneficial to the parties to the transaction.
Contact us for more information on an ESOP feasibility analysis.