PLANADVISER - May/June 2019 - 12

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ESOP Opportunities
Employers and employees both receive benefits
A TRUE employee stock ownership
plan (ESOP) is one in which all eligible
employees, from rank and file to
managers and owners, have a piece
of ownership in the company through
the plan. An ESOP holds a little cash,
but its only investment option is
company stock.
Yet, with the frequent lawsuits
against 401(k) plan sponsors over
company stock, and with Department
of Labor (DOL) litigation targeting some
company stock purchase transactions,
one might wonder whether sponsoring
an ESOP is a good idea.
Mark Kossow, a member at law
firm Clark Hill PLC whose practice
focuses on ESOPs, says retirement plan
company stock investment lawsuits
are outlier cases. He points to empirical
evidence that ESOP-owned companies
are more profitable. " The benefit
as a retirement plan will be valuable to
employees and employers, " he says.
According to Joanne Swerdlin,
executive vice president, Swerdlin &
Co., an Ascensus company, there are
more plan assets in ESOP accounts in
this country than ever before, and the
plans create wealth for more people
every day. She says the fact that the
DOL litigates certain abuses should
reassure participants that there is a
commitment
to
effective
oversight
and to eliminating bad actors from
the industry.
Jerry Ripperger, vice president
of consulting at Principal Financial
Group, says retirement plan advisers
do not provide many services to ESOPs,
but they should. He adds that his firm
encourages plan sponsors to offer
an ESOP as a complement to their
401(k) plan. " Often, an ESOP is set up
without plan sponsors understanding
how to wrap it with their total retirement
program, " he observes. " Advisers
can come in with plan designs to help
employees meet goals. They should
be front and center driving the whole
retirement plan strategy. "
According to Kossow, an ESOP transaction
involves two attorneys-one
for the plan sponsor and one for the
ESOP. ESOPs also need an independent
trustee-one who has control over
assets and considers buys and sells-as
well as an appraiser who works with
the trustee to determine the fair market
value of the stock. In addition, a thirdparty
administrator (TPA) or recordkeeper
determines benefit allocations
to participants and beneficiaries after
an ESOP transaction has been made.
Plan advisers can help with selecting
all of these parties.
Advisers may also provide employee
communications to explain how the
plan works, Kossow notes.
Besides cash in the ESOP that needs
to be managed, these plans also have a
repurchase obligation, Swerdlin says.
They face the risk of having too little
available cash to pay out if employees
becomes disabled, die, retire or leave
the company. This could be funded
with corporate-owned life insurance
(COLI), she says. -Rebecca Moore
12 | planadviser.com May-June 2019
Art by Hayden Maynard
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PLANADVISER - May/June 2019

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