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 our valuation is completed after the required 90-day period for diversification, how do we handle the diversification election?

This is a very common problem, and there is no regulatory guidance on the matter. First, your plan language should specify how these situations are handled. The most recommended approach is to allow the participant to make a preliminary election based on the most recent valuation within the required 90-day period. Then, when the valuation is complete, the participant has another 90-day period to change the election to a final election. Some companies provide a preliminary election at some percentage of anticipated value, and allow a final election to true it up, but this can be risky if there are substantial changes.

For more details, see The ESOP Repurchase Obligation Handbook.

Link to this FAQ Topic: Distributions & Repurchase