What is an ESOP repurchase obligation study?

• A Repurchase Obligation study is a long-term projection (typically 10 to 20 years) of ESOP distributions and the associated cash requirements that a company will face
• It is based on assumptions about a number of actuarial and financial variables
• It should include multiple scenarios, based on a range of possible values for key variables

Why do you need to do a repurchase obligation study?

• ESOP companies whose stock is not publicly traded have an obligation to provide cash to participants when they are entitled to receive a distribution from the ESOP
  
  • These liquidity events occur when participants terminate employment (because of death, disability, retirement, or other termination) or exercise diversification rights while they are still employed
• To plan for these liquidity needs, ESOP distributions and payouts have to be anticipated and integrated into the company's financial forecasting and planning

When should you do the first study?

• Ideally, repurchase obligations should be considered in the design of the ESOP, so that the implications of alternative eligibility, vesting and ESOP distribution provisions can be quantified and understood
• The first repurchase obligation study should be done as part of the implementation of the ESOP, especially if the ESOP is acquiring a majority interest in the company
• For ESOPs that own a relatively small percentage of the company, the first repurchase obligation study is sometimes postponed until any ESOP loans are repaid or the purchase of additional shares is being considered

How often should you update a repurchase obligation study?

• A repurchase obligation study should be updated whenever the assumptions have become out-of-date or when there are significant changes in the employee census
• Clients who use our Telescope software typically update their repurchase obligation forecasts annually as part of their corporate financial planning process

What are the data requirements?

• Census of employees
• Plan document
• Most recent valuation report
• Repurchase obligation questionnaire

What is the process of doing a study?

• Data collection and review
• Identify planning issues and define scenarios that are needed
• Draft of assumptions
• Conference call(s) to discuss and refine scenarios and assumptions
• Perform projections
• Prepare and deliver report
• Conference call to review report

What will you receive?

• We deliver a comprehensive report with the following components:
  • Executive summary
  • Detailed schedules showing year-by-year projections
  • Detailed description of the assumptions that were used
  • Individual projections for participants with the largest account balances
• After the report is delivered, we review the report with you via conference call
  • We are also available for in-person meetings (for an additional fee) to meet with your Board of Directors or your management team to review the report with them and to provide education on repurchase obligation issues

How long will it take?

• Ideally, we like to allow eight weeks from the time we receive data for completion of the study, but we will try to accommodate your timing needs

How much will it cost?

• Our fees for a study depend on the number of participants in the ESOP, the complexity of the plan, and the number of scenarios.  We can generally quote a fee after a brief telephone conversation with you.

How can we help you?

• We work with ESOP companies providing services specific to their needs.  For more insight into how we can help your company, tell us if you are:

           New to repurchase obligation planning

           Looking for tools that will allow you to do repurchase obligation
           projections on your own

           Want help developing a repurchase obligation strategy

           Want to educate the Board of Directors about repurchase obligations

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