Repurchase Not Major Driver of ESOP Plan Termination

A new research project on ESOP terminations, performed by the NCEO and funded by the Employee Ownership Foundation, collected data from 23 large ESOP plan administration firms. They reported results from over 3,300 companies. Just two percent of the companies terminated their plans each year, about half the rate of defined contribution plans in general. Of the companies with terminated ESOPs, slightly over half said they terminated their plans in connection with accepting an attractive offer to purchase the company, even though they could handle their existing repurchase obligation well. Only 13% of the companies were doing well financially but could not handle repurchase, while another 13% were in financial difficulty. The remaining 20% of the terminations were primarily caused with other dissatisfactions with ESOP rules.

The study also found that 49% of all companies in the sample were majority ESOP-owned and 40% were S corporation ESOPs. S ESOPs were about half as likely to report that difficulty with repurchase was a cause for plan termination as C ESOPs.

A full report will appear in the NCEO newsletter to be mailed this week.