Administering a Mature ESOP

The XYZ Company Employee Stock Ownership Plan (ESOP) came to SES Advisors as a mature ESOP plan sponsored by a C corporation. The company was interested in doing an additional leveraged transaction to enable the ESOP to buy shares from the remaining shareholder and to become 100% ESOP owned. They also wondered how they were going to handle the distribution process once the original loan was paid in full.

SES Advisors first step was auditing the plan from an administrative perspective. The audit included review of eligibility, allocations and vesting from prior reports, as well as adherence to disclosure and filing deadlines and statutory compliance with Internal Revenue Service and Department of Labor regulations. Because of our extensive experience administering ESOPs, we are often able to uncover and correct problems that may be overlooked by administrators who have less experience with ESOPs.

The team at SES Advisors corrected the problems in the most efficient way to satisfy both the regulatory agencies and the plan trustees. SES Advisors administration team helped the company’s management team design customized distribution forms, participant statements and allocation reports. We advised XYZ on different ways to handle its upcoming repurchase obligation resulting from the payoff of the loan and the diversification requirement. Additionally, we advised the management team on how to maximize deductible dividends to make loan payments and how they could buy out the remaining shareholder and continue to enjoy the tax benefits of sponsoring the ESOP.

A senior administrator led the initial takeover process and comprehensive audit. As in most cases, the same senior administrator became XYZ’s primary contact at SES Advisors. The assigned administrator knew the XYZ Company inside and out and was always available for any questions. In addition, the senior administrator was responsible for the annual allocations, compliance testing, disclosures (forms and statements) and filing for the ESOP.

Whatever the future holds for the XYZ Company ESOP, the integrated SES Advisors team will be able to administer the ESOP and consult with the company’s management team and the ESOP trustees on a variety of possible issues, including making an S corporation election, forecasting for the repurchase obligation, modifying the distribution policy, or considering an acquisition or merger.