Comments on: Alphabet Soup – The ABCs of ESOPs

By: Jerry Ripperger, Director-Consulting, the Principal Financial Group, Princor Registered Representative

Tue, 29 Jan 2013 21:02:57 +0000

Bruce, thanks for your question. When a company states that it is 100% employee owned it can mean a few different things. It may mean simply that it is a privately held corporation and all of the owners are current or former employees.

In the case of an employee stock ownership plan, it typically means that all of the capital stock of the company is owned by the ESOP trust on behalf of the employees. If ten percent of the stock was held by others (even if they were employees but the stock is outside the trust), it wouldn’t generally be considered 100% employee owned.

However, a note of caution. There is no governing body on what the definition of 100% employee owned means. When in doubt, ask the company.

By: Bruce Langness

Bruce Langness — Tue, 29 Jan 2013 01:02:58 +0000

When an ESOP company claims to be 100% employee owned what does that really mean? For example can a company claim to be 100% employee owned when say 10% or more of the ESOP participants are non-employees? Is there an ESOP standard for this?

By: Anonymous

Anonymous — Thu, 13 Dec 2012 16:03:03 +0000

Thanks for your response, Jerry. So I was wrong, ESOP doesn’t work like a mutual fund.

By: Jerry Ripperger, Director-Consulting, the Principal Financial Group, Princor Registered Representative

Thu, 13 Dec 2012 15:52:39 +0000

An example may help to illustrate the operation of the plan. For simplicity, let’s assume we have a single owner of the stock of a company (Bob). Bob wants to generate some cash, so the company establishes an ESOP and using the proceeds of the loan from the company, the ESOP purchases shares from Bob. Subsequently, the company makes annual contributions to the ESOP which the ESOP then in turn uses to repay the loan to the company. As that loan is repaid, shares are unencumbered and are allocated to participant accounts. These shares are owned by the ESOP (a qualified retirement plan) on behalf of the participants. As a result, employees have a beneficial ownership in the company that they work for.

By: Jerry Ripperger, Director-Consulting, the Principal Financial Group, Princor Registered Representative

Thu, 13 Dec 2012 15:47:41 +0000

They say a picture is worth a thousand words and in this case I couldn’t agree more.

By: Jerry Ripperger, Director-Consulting, the Principal Financial Group, Princor Registered Representative

Thu, 13 Dec 2012 15:47:14 +0000

Barb – it is amazing what a good photographer can do!

By: Jerry Ripperger, Director-Consulting, the Principal Financial Group, Princor Registered Representative

Thu, 13 Dec 2012 15:46:55 +0000

Thanks. I appreciate your comments. I will be posting every couple of weeks so please keep reading!

By: Anonymous

Anonymous — Wed, 12 Dec 2012 14:49:31 +0000

Great visual Jerry – thank you for sharing!

By: Barb Mueller

Barb Mueller — Tue, 11 Dec 2012 19:56:58 +0000

Great Picture of you Jerry!

By: Anonymous

Anonymous — Tue, 11 Dec 2012 16:55:51 +0000

Good stuff – keep up the communications!