FREE online courses on ESOP - How Does ESOP Work - Key Decisions
The plan document should include:
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Language addressing the plan's purpose and operation,
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Eligibility requirements,
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Participation requirements,
- Company
contributions,
-
Investment of plan assets,
- Account
allocation formulas,
- Vesting
and forfeitures,
- Voting
rights and fiduciary responsibilities,
-
Distribution rules and put options,
-
Employee disclosures, and
-
Provisions for plan amendments.
Other key decisions are who will serve as the ESOP's
trustee and who will assume the functions of administering the ESOP?
The stock (as well as any other assets) held by the ESOP must
actually be held in the name of the trustee, who usually has fiduciary
responsibility for the plan's assets. Increasingly, plan sponsors are turning to
professional trustees, such as a bank or trust company, although companies
sponsoring an ESOP can and do handle this role in-house. The job of ESOP
administration is likewise a function, which may be given to a professional
administration firm or handled by the sponsor. The administrator is responsible
for maintaining all the individual records of the plan in order to keep track of
exactly who are the current participants in the plan, what percent is each
participant vested, what is the content and value of each participant's account,
etc.
On finalization of the legal documents, the company is ready
to implement ESOP.
