Companies, as plan sponsors, make many plan design decisions (e.g., distribution policies) when implementing an employee stock ownership plan (ESOP) and then often automatically follow those procedures despite changes in the business, in employee demographics and in the economic environment. Company leaders may not realize plan provisions can be changed (within some limits) or may not fully understand how changes may benefit the company or its employees. The result? Plans on autopilot may fail to meet the company’s goals after the initial ownership transition.
This article describes a few key examples that often need to be reviewed periodically during the life cycle of an ESOP, including:
- Employee benefit levels
- Share allocations
- Distribution rule
- Repurchase obligations
With some manual overrides, the company can help drive beneficial results from the ESOP instead of having the ESOP drive the company.