The Employee Stock Ownership Trust – A New Trend In Employee Benefits and Corporate Finance

An increasing number of companies are turning to Employee Stock Ownership Trust financing as a means to simultaneously raise low cost capital and provide increased employee incentives and retirement benefits while reducing the cost of qualified plan benefits. The Employee Stock Ownership Plan is a qualified plan under Section 401(a) of the Internal Revenue Code. As such it is in the same family as pension plans, profit sharing plans and stock bonus plans. Nevertheless, The Employee Stock Ownership Plan (which together with the Employee Stock Ownership Plan, is referred to as the “Trust” or “ESOP”) is qualitatively different from other types of “qualified plans,” both in its concept and in its applications. Because of its inherent flexibility, because of its ability to facilitate and enhance corporate growth and because of its separate status under the recently enacted Pension Reform Act, the ESOP possesses an assortment of unique advantages not possessed ... Read More..

ESOPs on the Rise Among Small Businesses

Small companies are rushing to reward workers with employee stock ownership plans as low valuations make awarding shares more attractive By Karen E. Klein Bob Moore gathered three employee shifts together last month for pizza parties to celebrate his 81st birthday. But Moore, the founder and president of Bob’s Red Mill Natural Foods in Portland, Ore., also had a surprise announcement: He was giving his 200 employees the company he founded in 1978. “I thought some of them were going to kiss me,” Moore recalls. “It went over very, very, very well.” Moore and his partners researched their retirement options for more than a decade before settling last year on an Employee Stock Ownership Plan (ESOP). An ESOP is a tax-advantaged, qualified employee retirement plan similar to a stock bonus plan except that it can borrow money. ESOPs are typically created to buy out all or part of an owner’s interest in an ... Read More..

New Study Documents ESOP Account Balances

The NCEO has just completed an analysis of Form 5500 retirement plan filings filed by ESOP companies. The Form 5500 data are prone to considerable reporting and transcription error and should be used with caution, but many of the results described below are in accord with prior research, with our experience, and with best estimates from practitioners in the field. Among the companies studied, the average value of plan assets per participant is approximately $46,000. This compares to the average of $47,680 reported for the state of Washington in 1995 (See Wealth and Income Consequences of Employee Ownership by Peter Kardas, Adria Scharf, and Jim Keough, (Oakland, CA: National Center for Employee Ownership, 1998) and to an average 401(k) account balance of $58,000 in 2005 computed by the Employee Benefit Research Institute and Investment Company Institute. However, typically only one-third or less of 401(k) plan balances are attributable to company ... Read More..