New Data on ESOP Repurchase Obligations
NCEO founder and senior staff member
A new NCEO survey of over 420 ESOP companies on how they handle their repurchase obligations found that the most commonly used method of funding current-year ESOP distributions is cash from company operations. Fifty-eight percent of respondents used cash from operations for funding distributions in the most recent plan year, and 43% exclusively used cash from operations. The next most common sources of repurchases were annual cash contributions to the ESOP (used by 30% of respondents) and cash in the ESOP from prior year contributions (used by 27%). Six percent used corporate sinking funds, and the other funding sources (corporate-owned life insurance, new ESOP debt, and purchases by management) were used by no more than 3% of respondents.
About three-quarters of the companies immediately or after some delay move shares bought from former employees back into the ESOP. Most companies make distributions in lump sums, followed closely by companies that pay in installments for larger balances and lump sums for smaller balances. Two-thirds of respondents giving a valid response said that their company's valuation firm considers repurchase obligation in appraising the company's stock, a dramatically higher percentage than in past surveys. Eighty-four percent of respondents said that they intend their ESOPs to be permanent.
A report on the survey will be available in the members-only area of this site later in February.