Frequently Asked Questions

Employee Ownership FAQs

Common questions about employee stock ownership plans (ESOPs), employee ownership trusts (EOTs), and other forms of employee ownership, from the basics to technical topics.

This FAQ is written primarily for business owners, managers, and advisors involved in setting up or running an employee ownership plan. If you're an employee at an ESOP company looking to understand your own benefits and rights, see our articles on Working at an ESOP Company and The Rights of ESOP Participants.

NCEO employee ownership FAQ hero (keyboard)

If an ESOP that had been using the principal-only method of releasing shares is refinanced to a more-than 10-year loan, does the company need to reallocate shares in the ESOPs to reflect the principal and interest method?

Leveraged ESOPs that have more than a 10-year term must release shares based on the principal and interest paid. If an ESOP is refinanced that used the principal only method, then certainly going forward, allocations must be based on principal and interest. It is not clear how prior allocations are affected (there is no guidance on this). One option would be to set up a catch-up release and allocation so that the cumulative allocation meets the minimum threshold under the new loan amortization. All of this would need to be tested against prohibited discrimination in favor of highly compensated employees.

Link to this FAQ Topic: ESOP Plan Design & Participation