The annual employee stock ownership plan (ESOP) allocation process involves many different parties and many different moving parts. In order to complete the ESOP allocation in a timely manner, it is important to effectively manage the allocation process. One of the easiest and most effective ways to manage the ESOP allocation process is by preparing and maintaining an allocation timeline.

What is an allocation timeline?

An allocation timeline is a project plan or report that lists the various ESOP deliverables along with the responsible party and due date. The responsible party could be the Plan Administrator, Plan Trustee, ESOP consultant, third-party administration (TPA) firm, or any other trusted advisor. The level of detail needed for an allocation timeline varies from plan to plan and year to year. While you could use project management software for the timeline, a spreadsheet or word processor document will be sufficient and enable you to easily maintain the timeline and share it with all parties.

What are the benefits of using an allocation timeline?

Using an allocation timeline provides you with a tool to manage the ESOP allocation process and hold all parties accountable to meeting their objectives. It also helps you keep organized by documenting all tasks in one location.

What information should be included on an allocation timeline?

While the format of each timeline will vary, here is a list of some of the common items on an allocation timeline:

• Deliverable or item to be completed
• Party responsible for the task (When possible, you should identify a specific person.)
• Date the item is scheduled to be completed
• Date the item is actually completed
• Date the item was completed last year
• Number of days it will take to complete
• Prerequisites to processing the deliverable

How do I prepare an allocation timeline?

The easiest and most effective way to prepare an allocation timeline is to identify the key deliverables and due dates and work your way backward to the start of the plan year. The most common key deliverables include reporting final account balances, delivering participant statements, conducting employee meetings, and filing IRS Form 5500. As you move backward, you will need to define how many days each item will take to complete. For example, it may take one day to organize the trust statements and one week to prepare and review the trust accounting. If you run out of days, you will either need to change the end deliverable date or look for ways to speed up some of the earlier tasks. The level of detail to include on the allocation timeline varies from plan to plan and plan year to plan year. For example, the trust accounting for one plan may be very straightforward and may only require one item (prepare and review trust accounting reports). Another plan may involve multiple loans that are paid using both dividends and contributions and you may be working closely with the accountant. In this case, you will probably want to identify the items that each party is responsible for separately, such as prepare listing of loan payments, locate minutes containing contributions and dividends, prepare and review release of shares schedules, and prepare and review complete trust accounting reports.

What are some of the best practices to effectively use allocation timelines?

• Assign an owner to the timeline. - The owner will be responsible for ensuring that the timeline is updated (not necessarily doing any or all of the updating) and that all parties are meeting their obligations in a timely manner. If a deadline is missed, this person quickly works with the responsible party to get the allocation back on target or revises the timeline accordingly. While it is not always practical, it can be very effective to assign an owner who is not involved with the day-to-day responsibilities of the plan, as it allows someone to stay focused on the final deliverables and not on the details of a particular item.
  
• Ensure that the appropriate company representatives are involved in the communication process. - One of the worst things that can happen is that all parties involved with the allocation process are on the same page as far as the timing but not on the same page as others at the company (e.g., the owner, senior management, the participants). If the deliverable date is going to be changed, it is essential that the change be communicated to the appropriate people in the company.
  
• Define the number of days that it will take to complete a specific project. - This will illustrate how a delay in one part of the process affects the rest of the process and will assist you in making changes in the timeline. For example, if the final allocation cannot be completed until one week after the stock value is received, and the stock value is three weeks late, then it is impossible to expect the final allocation will be completed on time.

What items should I include on an allocation timeline?

Every allocation timeline will be slightly different. If you use the timeline effectively, you will find more items are added every plan year as your ESOP matures and you become more reliant on the timeline. Plan circumstances will also dictate the specific items on the timeline. For example, if your company is frequently involved with acquisitions and dispositions, you will probably want to add a specific item to the timeline confirming that you have gathered the appropriate information. However, this item would not be relevant for most timelines. Generally speaking, the more detailed the timeline, the better.

Sample Timeline

Here is an example of a typical allocation timeline. A sample due date is included in parentheses. The actual order, due dates, and specific items will vary from plan to plan and year to year.

1. Conduct 2009 Pre-Allocation Planning Meeting (December 1, 2009)
   
2. Review 2008 Timeline and Allocation Process (December 1, 2009)
   
3. Prepare 2009 Timeline and Agree on Dates with All Parties (December 1, 2009)
   
4. Process Benefit Payment Government Filings (January 15, 2010)
   
5. Organize Trust Information (January 15, 2010)
   
6. Organize Census Information (January 31, 2010)
   
7. Determine Eligibility and Perform Preliminary Compliance Testing (February 15, 2010)
   
8. Finalize Trust Accounting (February 15, 2010)
   
9. Perform Preliminary Allocation (March 1, 2010)
   
10. Send Preliminary Diversification Forms to Participants (March 15, 2010)
    
11. Receive and Approve Final Stock Value (March 31, 2010)
    
12. Required Minimum Distribution Due Date (April 1, 2010)
    
13. Finalize Allocation, Compliance Testing, and Participant Statements (April 15, 2010)
    
14. Deliver Participant Statements (April 30, 2010)
    
15. Conduct Employee Meetings (April 30, 2010)
    
16. Complete IRS Form 5500 (April 30, 2010)
    
17. Send Distribution Paperwork to Eligible Participants (April 30, 2010)
    
18. Send Final Diversification Forms to Participants (April 30, 2010)
    
19. Complete ESOP Audit (May 31, 2010)
    
20. File IRS Form 5500 (May 31, 2010)
    
21. Process Distributions and Diversifications (May 31, 2010)
    
22. Conduct 2009 Post-Allocation Planning Meeting (June 30, 2010)
    
23. Notify New Participants (November 15, 2010)
    
24. Required Minimum Distribution Due Date (December 31, 2010)

The ESOP Planning process includes planning for both the current year ESOP administration process as well as the various events that take place over the life of an ESOP. This article is one in a series of ESOP Planning 2009 articles authored by Aaron Juckett. Aaron Juckett is an ESOP consultant and the founder of ESOP Insourcing LLC, an ESOP administration and consulting firm dedicated to providing ESOP companies with a first-class ESOP experience throughout the entire ESOP lifecycle (feasibility and implementation, ongoing administration and compliance, employee communications, distribution planning, and repurchase obligation forecasting). If you need assistance with the ESOP Planning process, please call Aaron at 800-837-3112 or email him at ajuckett@esopinsourcing.com.