ESOP Sustainability Studies – Repurchase Obligation

Managing cash flow is fundamental to long-term ESOP success and sustainability and that requires a clear view of the cash needed to meet your ESOP’s short-term and long-term stock repurchase obligations.

Why? A closely held ESOP company is required to buy back shares according to the plan’s distribution policy. Distributable events can include retirement, termination of employment, death, or disability; and diversification opportunities can begin when participants reach age 55 and have 10 years of participation in the ESOP.

Without a clear understanding of the potential demands for cash to repurchase those shares, any ESOP company could have a hard time planning ahead to meet all its cash needs. Even worse, it could end up leaving potential savings on the table.

A sustainability study can help you proactively manage cash flow to meet repurchase liabilities while maintaining company stability and a successful ESOP. Download our free tip sheet to learn more.

An ESOP sustainability study is a repurchase obligation forecast that begins by using your individual business information and actuarial data to generate a projection of the cash your company will need to satisfy ESOP distribution liabilities following the distribution timing, form, and method requirements articulated in your plan documents and policies.

From that foundation, the sustainability study creates an iterative, enduring approach to maximize the repurchase obligation process in a way that best addresses the company’s long-term goals and objectives.

Given that your ESOP plan design is unique, your sustainability needs are likely just as individual.

As your ESOP matures and/or your business grows, it becomes even more important to keep a close eye on repurchase liability. In most cases, companies should perform a sustainability study anywhere from annually to every few years — but it’s important to note that your ESOP plan design and policies, company performance, and employee demographics all contribute to your repurchase liability.

While a cadence of one to three years is common for ESOP sustainability studies, you may find circumstances arise that generate some urgency, such as:

An overabundance of cash in the ESOP

Significant workforce reductions or changes

Distributions to long-term employees on the horizon (including diversification)

Significant changes to participant demographics

Corporate strategic planning needs

Plan design review

Step 1

Collaborate

We collaborate with you to develop assumptions based on a variety of scenarios, using your individual company data, as well as actuarial data, as a basis for analysis and projection.

Step 1

Step 2

Analyze

We analyze the data and create reports that help you visualize the impact of stock repurchase obligations on your company and the ESOP.

Step 2

Step 3

Consult

We consult with you to incorporate the projections into a comprehensive, long-term strategy designed to achieve your business and ESOP objectives.

Step 3

Plan for Your Repurchase Liability

With Timely, Accurate Sustainability Studies

What is an ESOP Sustainability Study?