I am interested in expanding my knowledge base related to
Leveraged ESOP
Answers
Ron,
I am not sure if I can help, but I prepared the annual financial statements for a leveraged ESOP for five years.
I would imagine that the actuary for your defined benefit plans would have some great free resources (and advice to share). I would look at the web sites of Mercer and Hewitt if they are not your actuary.
Feel free to reach out to me directly at [email protected] and I'll see if I can be of any assistance.
Best regards,
Ernie
1
Thank you. I will look at their website, and may contact you as well. I do not have an actuary as this is simply for my knowledge, and expanding knowledge.
It has been about 15 years since I looked at the accounting for one of these plans, but I advise you to avoid it if at all possible. The accounting is a nightmare. I worked at a very large telecomm company that had a trivestiture in 1990's, and their ESOP had to be split. A change in the capital structure adds to the accounting nightmare.
As I recall, the shares are released into employee accounts in proportion to principal repayments on the loan.
1
Amen on avoid a leveraged ESOP like the plaque, but sometimes you do ot have that luxury. Everyone wants to get out of the DB Business, but this not much of an option (if at all possible) once a Leveraged ESOP is in place as it must first "run its course".
How big a company/ESOP?
For a while these were all the rage for large publicly traded companies until stock prices ran up dramatically and the 'value' being released to participants was far greater than ever imagined whenthe plan was established. The accounting is not onerous. The unwind if it does not work as planned can be VERY expensive.
You will most likely have an employee windfall with an ESOP if you use it to fund, e.g., the company match on the 401(k) plan. this will affect your P&L.
AICPA 93-6 said, for example
Some employers agree to provide a specified or determinable benefit, such as a contribution to a 401(k) plan or to a formula profit-sharing plan, to employees and use the ESOP to partially or fully fund the benefit. Employers should recognize compensation cost and liabilities associated with providing such benefits to employees in the same manner they would had an ESOP not been used to fund the benefit. For ESOP shares committed to be released to settle liabilities for such benefits, employers should report satisfaction of the liabilities when the shares are committed to be released to settle the liability. The number of shares released to settle the liability is based on the fair value of shares as of dates specified by the employers, which are usually specified in the ESOP documents.
I spent four days last week in Minneapolis at the annual Employee Ownership Conference sponsored by The National Center for Employee Ownership and co-sponsored by the Beyster Institute at the Rady School of
If you’re looking for the best and most current information available on ESOPs, I suggest you check out the NCEO website – www . nceo . org The NCEO was founded in 1981 as a private, nonprofit membership and research organization and serves as the leading source of accurate, unbiased information on employee stock ownership plans (ESOPs), equity compensation plans such as stock options, and ownership culture.
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