The New Pension Law and ESOPs

The new pension bill has only a limited impact on ESOPs. For the vast majority of ESOPs, the only significant impact is the new vesting rules. For contributions after 2006 (except for stock acquired by leveraged ESOPs with loans in place on September 26, 2005, where the old rules still apply for any plan year beginning before the earlier of the date the loan is fully repaid or the date on which the loan was scheduled to be repaid as of September 26, 2005), vesting must be completed after three years (for cliff vesting) or six years (for graded vesting). ESOP companies really should not lose any sleep over this change. Very few companies of any kind, but especially companies with already low turnover, have more than a tiny percentage of the workforce leaving in years four or five (for cliff vesting) or year seven. Employees who work for three years generally work for many more. The impact is so small, in fact, that most companies will want to apply the new rules to all contributions.