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Succession Planning: The ESOP Solution

Succession Planning: The ESOP Solution
January 7, 2013 at 11:00 - 12:00 PM ET
Given the uncertainty of future tax rules, limited marketability of a closely held business, and the growing number of business owners approaching retirement age, now is the time to understand how ESOPs (Employee Stock Ownership Plans) work. Come learn about the current ESOP environment from two panelists who serve hundreds of ESOP companies nationwide.

I. Succesion Planning Options

II. ESOP Overview

A. What is an ESOP?
B. Why ESOP?
C. ESOP Tax Incentives and Mechanics
D. How to implement an ESOP

III. Advanced ESOP Concepts (Optional Presentation at a future meeting)

A. Plan Design
B. Valuation
C. Administration
D. Living with an ESOP
E. Current Transaction Environment


Employee Stock Ownership Plan (ESOP) Basics

1. Company makes decision to establish ESOP (creates plan and trust documents) and names an ESOP trustee (usually senior management employee(s) who are not selling shareholders). Alternatively, Company may appoint an outside trustee (could be institution like a bank).

2. Independent appraiser determines share FMV and ESOP purchases stock from selling shareholder(s) at price no greater than this FMV -- either with cash borrowed from a bank or the Company, or by credit extended by selling shareholder(s) in return for a note (i.e., leveraged transaction). Alternatively, Company may buy stock from the shareholder(s) and contribute stock directly to the ESOP (i.e., non-leveraged), usually with small percentages of stock.

3. If following the sale directly to the ESOP by the selling shareholder, the ESOP owns at least 30% of Company stock and Company is a C Corp., selling shareholder(s) of “eligible” shares can rollover sale proceeds tax-free into “qualifying replacement property” under IRC sec. 1042. S Corp. shareholders do not have this privilege.

4. If ESOP is leveraged, all the purchased stock resides in a “suspense account” inside the ESOP and the shares are allocated to participants each year as the loan is repaid through Company cash contributions to the ESOP.

5. Stock from the suspense account or stock that is contributed directly to the ESOP is usually allocated to participants in proportion to their annual compensation. Employees generally have to work a certain number of hours during the year (e.g., 1000 hours) to receive a year of service for allocation and vesting purposes. Allocations are subject to IRS limits and nondiscrimination rules (with additional “anti-abuse” rules for S Corp. ESOPs) and Company contributions (either stock or cash loan repayments) are subject to IRS deduction limits (more liberal deduction rules apply for C Corp. ESOPs).

6. When participants become eligible for distribution, the ESOP will distribute the applicable shares in the participant’s account and, if the Company is a C Corp., the participant has the right to require the Company to repurchase the stock at the FMV as of the prior year-end (“put” option). Alternatively, the Company may have the ESOP distribute benefits in cash. In this case, either cash must be in the ESOP from prior Company contributions or the Company must repurchase stock from the ESOP to fund the distributions. S Corp. ESOPs generally pay participants in cash, and there is no right to receive stock.

Who Should Participate
Human Resources professionals, Business Owners, and/or Finance professionals
Extra Learning Material

All Registered members are also eligible for:

  1. A copy of the slides presented in this presentation. These are available before and after the presentation.
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  3. Access to more than 400 podcasts with HR Gurus and Industry Leaders (downloadable files available 24 hours after the live broadcast) as well as access to our blogs, polls, surveys, 25,000+ article library, Business Book Reviews and so much more!
Recommended Resources
I have presented at almost 100 national conferences and seminars over the past 12 years. I have written articles for the NCEO, ESOP Association, Amer. Society of Pension Professionals and Actuaries, Family Firm Institute and Beyster Institute at UCSD
Staffing and Recruitment
Performance Management
Pay For Performance
PM Succession Planning
Incentives Measurement, Reporting and Analysis
Compensation Measurement, Reporting and Analysis
Compensation Planning and Management
Pay Equity
Incentives, Rewards and Recognition
Executive compensation
Incentives Planning and Management
Salary Survey Planning and Management
Stock Planning and Administration
Pay for Performance Planning and Management
Executive Compensation Management
Retirement Benefits
Recognition Programs
What You Will Learn
HR Professionals will learn about the alternatives for succession planning. Many business owners like to use ESOPs to ease out of the business flexibly. I will cover Basic ESOP concepts and be prepared for advanced questions. Finally, I will cover pointers on how to install an ESOP efficiently
Sponsored by
Blue Ridge ESOP Associates
Blue Ridge ESOP Associates
Founded in 1988, Blue Ridge ESOP Associates serves the ESOP community by providing the highest quality administration services for ESOP and 401(k) plans.
Presented by
speaker spacer
Tom Roback
Blue Ridge ESOP Associates

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Name Comment Rating
Image of Lee Herman Lee Herman
Orlando Baking Company
2 / 5
Poor Presentation
Image of Sharon Armstead Sharon Armstead
Habilitative Systems, Inc.
3 / 5
Good Presentation
Image of Katherine Naranjo Katherine Naranjo
Matthews Benefit Group, Inc
5 / 5
Excellent Presentation
Image of Kevra Esposito Kevra Esposito
3 / 5
Good Presentation
Image of Judy Kelly Judy Kelly
eLearning Global
5 / 5
Excellent Presentation
Image of Katie Githiomi, PHR Katie Githiomi, PHR
Destination Rewards, Inc.
3 / 5
Good Presentation
Image of Laura Hanna Laura Hanna
De River & Bay Authority
4 / 5
Very Good Presentation
Image of Taneshia Eaton Taneshia Eaton
Dallas County
5 / 5
Excellent Presentation
Image of Ellen Bavaro Ellen Bavaro
Ulta Beauty
4 / 5
Very Good Presentation
Image of dyanne ferk dyanne ferk
Univ of Illinois
4 / 5
Very Good Presentation
3 / 5
Good Presentation
Image of Thyra Austin Thyra Austin
Staples, Inc.
3 / 5
Good Presentation
2 / 5
Poor Presentation
Innovative Business Concepts
3 / 5
Good Presentation
5 / 5
Excellent Presentation
Image of Navon Tran, PHR-CA Navon Tran, PHR-CA
Spectra Laboratories
3 / 5
Good Presentation
Image of Sarah Dale Sarah Dale
Lockheed Martin Corporation
4 / 5
Very Good Presentation
Image of Roger Rosas Roger Rosas
Human Resource Professional
4 / 5
Very Good Presentation
Image of Angela Scott Angela Scott
Medline Industries Inc
4 / 5
Very Good Presentation
Image of Amy McCusker Amy McCusker
Stantec Consulting
3 / 5
Good Presentation
3 / 5
Good Presentation
Image of Chad Mucheck Chad Mucheck
Farmers Insurance
3 / 5
Good Presentation
Image of Angela Larsen Angela Larsen
4 / 5
Very Good Presentation
Image of Jennifer Susi Jennifer Susi
Asante Health System
3 / 5
Good Presentation
Image of Nancy Wraight Nancy Wraight
Avanti's Ristorantes
5 / 5
Excellent Presentation
5 / 5
Excellent Presentation
Image of Donna Ritchie Donna Ritchie
PL Marketing
4 / 5
Very Good Presentation
Image of Eddy Parham, SPHR Eddy Parham, SPHR
City Of Danville
2 / 5
Poor Presentation
Image of Vicky George, PHR Vicky George, PHR
Bechtel Corporation
Although this information wasn't necessarily relevant in my current position it did provide new and interesting information to me. Thank you for the session. 3 / 5
Good Presentation
Good presentation on what is generally a dry subject. Presented kept it easy to stay engaged. 4 / 5
Very Good Presentation
Image of Samantha Jackson Samantha Jackson
Westminster College
Great job my first webinar and it was very interesting and educational. 5 / 5
Excellent Presentation
Image of Adrian Narayanan Adrian Narayanan
Verizon Wireless
Great presentation 4 / 5
Very Good Presentation
Image of Bert Baker Bert Baker
Belcan Engineering
I still do not understand how this improves succession planning. I understand the tax benefits. But if the owner has a chosen successor it works well with the company remaining private or becomming an ESOP. Not clear how the company will have an ongoing life of succession. Is the trustee responsible for maintaining the ongoing life of the company? Or do we trust each generation of CEO to do an excellent job of planning for their successor? 4 / 5
Very Good Presentation
Image of jacqueline gordon jacqueline gordon
Department Of Homeland Security
I would like to see something tailored aroung Federal government. great inforamtion; however process is hard to fit in the fed e.nviroment 4 / 5
Very Good Presentation
Image of Mafaz Zarook Mafaz Zarook
Union Assurance PLC, Sri Lanka
not relevant to practice in m country but its good 3 / 5
Good Presentation
Image of Jennifer Werneke, SPHR Jennifer Werneke, SPHR
Cotter Consulting, Inc.
pace was a little slow 3 / 5
Good Presentation
Image of Melissa Brennaman Melissa Brennaman
Georgia State University
Sorry I didn't know what an ESOP was going into this. I work for a university not a stock oriented corporation.
"The ""Why""we are sharing information is more valuable than the ""What"" is presented. And the ""Why"" must consider the audience not just the presenter." 3 / 5
Good Presentation
Image of Angie Dunne Angie Dunne
Ironstone Communications, Inc.
the audio was breaking up so badly that I could not understand the presenter 4 / 5
Very Good Presentation
Image of Rodrigo Barrio Orea Rodrigo Barrio Orea
American Express Company
The purpose of the webinar was unclear to me. 2 / 5
Poor Presentation
Image of Kathy Buckner, PHR Kathy Buckner, PHR
Axxess Technology
This was wonderful! Please keep me informed of all webinars. Kathy B 4 / 5
Very Good Presentation
When you send Webcast reminder could you please add the south asian time that Webcast will start.(GTM) Thank you Shamin 4 / 5
Very Good Presentation
Image of Miriam Berger Miriam Berger
A Hire Authority

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