Find Your Resource

by Chris Buch and Robert Grossman, Polisinelli, P.C.

A new Rutgers study provides compelling new interview data on how ESOPs improve workers' lives.

Most ESOP companies have a very open-book, high-involvement culture. They share a lot of information with employees about the company, and they set up structures for employees to get more involved in identifying problems and generating ideas.

Americans have largely taken for granted that businesses should be owned by their investors or founders. Some believe it is the best ownership system possible; others simply accept it as an inevitable consequence of capitalism.

Based on my involvement with a number of ESOP boards and my own experience as CEO and chairman of the board of OwnersEdge, a Wisconsin-based ESOP holding company with five affiliates, I’ve noticed an opportunity for more strategic board leadership.

Most ESOP companies have no desire to be sold. Boards and company leadership value the independence, culture, tax benefits, and system of sharing that ESOPs provide. But there are times when a sale is desirable. The company may need to sell to grow, may receive an extraordinary offer, may not have the cash for repurchase obligations, or any number of other reasons.

The rules for accounting for an ESOP are not always intuitive, but understanding some key concepts can make the process easier.

ESOP distribution rules are a minefield, with problems just waiting to happen. The rules are complex. Plan sponsors are primarily concerned with the timely identification of those entitled to distribution, how much they get, and when they get it.

The plan document defines which employees may participate in the ESOP and which are excluded from participation. It defines the conditions for joining the ESOP. What can go wrong, especially if the plan sponsor hired a third-party administrator (TPA) to assist with determining who is eligible and the date eligible?

This article is based on a recent NCEO webinar by Ted Becker and Allison Egan of McDermott, Will & Emery.