Author Topic: ESOP (Employee Stock Ownership Plan) Experiences?  (Read 1350 times)

jda1984

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ESOP (Employee Stock Ownership Plan) Experiences?
« on: December 30, 2014, 12:33:58 PM »
Hi All,

A couple of years ago, our company started an ESOP which is basically a trust that holds shares of the company (and potentially other assets) that are allocated to the employees of the company over time and according to compensation.  The main reason this was done was to provide a way to buy-out the founder of the company (who owned ~35% of total shares at the time).  The company took a loan from the sellers to the ESOP which is being repaid over time with contributions to the plan (leveraged ESOP).  Due to ERISA law, there is a discount on allocated shares proportional to the remaining debt (i.e. if a share is normally worth $10, but the debt is only 50% paid off, the ESOP share is worth ~$5).

How much would/should one feel comfortable with being in this trust?  Over the last three years the company has made contributions of ~$50k which are probably worth about $30-35k with the note accounted for.  I also own about $10k of non-ESOP shares (which pay dividends depending on net income of about 10% per year).  Roth IRAs for me and my wife are worth about $60k and we have a rental property that brings in about $1200/mo net which we see as part of our long-term investment strategy (worth about $150k, $85k on the mortgage).  One fear I have is that as the ESOP pays down the loan, the shareholder distributions/dividends will be reduced since the ESOP will essentially be sitting on a pile of cash.

Is there anyone else out there that is a participant in an ESOP?  It seems like a good deal at least early on (and once the note is paid off), but over time this seems like a pretty poor retirement plan.  The trustee of the plan (who works for a bank) has stated that capital preservation and not growth would be his target once the note is paid in full.  That might be fine if all the participants are 50+, but several of the employees are 30 or less.  I've spoken with a few others who are or have been in ESOP companies in the past, but I'm interested to see if anyone here has and what their experience has been.

Thanks!