Employee stock ownership plans (ESOPs) offer excellent benefits for the companies that sponsor them, shareholders who sell to the ESOP, and of course the plan participants themselves. However, ESOPs and the regulatory environment in which they exist raise a host of administrative issues for companies and third-party administration firms. This book, written by leading practitioners in the field, is not a step-by-step handbook for those wishing to administer a plan themselves but rather a guide to the issues that companies face in operating their plans.
Table of Contents
An ESOP Administration Primer
Filing the Form 5500
ESOP Participants and Shareholder Rights
Tracking ESOP Shares
Qualified Domestic Relations Orders and ESOPs
Reporting and Disclosure Rules for ESOPs
Do You Need an ESOP Distribution Policy?
ESOP Benefit Distribution Rules
ESOP Diversification Requirements
Administering ESOPs in Combination with Other Qualified Plans: Compliance Issues
Administrative Issues Relating to Mergers and Acquisitions Involving an ESOP Company
When the DOL or IRS Comes Knocking: Dealing with Audits
Voluntary Programs Available to Correct Defects in Qualified Plans
Terminating an ESOP: Valuation and Fiduciary Issues
From Chapter 1, "An ESOP Administration Primer"
The basic objective is to be sure the employee and trust data are complete and cover the period required by your plan for various purposes. Usually, the plan year, the limitation year, and other cycle-related events, for example, are uniform, but not necessarily. If you have allocations done on a plan-year basis and limitations applied on some other 12-month period (the calendar year, perhaps) you will have no choice but to accumulate compensation and contribution data on both bases. The trick is to keep the timing straight and the balances reconciled. Although this is purely an accounting function, beware of the unusual accounting procedures employed by ESOPs. Especially with regard to timing of contributions and application of loan payments, ESOP accounting often creates outcomes that are difficult for the regular accounting community to comprehend. As an example, contributions made to the trust after the close of a plan year may be applied back to the preceding year (if they are made before the tax-filing deadline) or forward to the current year. The controlling factors are the year for which the contribution is to be allocated and the year for which the company is taking its tax deduction (which we fervently hope are the same year). If there is a "most critical" stage, we would say it is this one because it is very difficult to see data errors after the process has moved on, and the results of bad data are always significant. Leave one employee off of the census who should be on, for example, and in a leveraged ESOP, every account for every participant will almost certainly be wrong.