What happens when a plan participant leaves the firm? Except when the participant’s departure was due to a criminal act, the following general conditions apply and they are specifically set forth in the plan document. When participants leave the company (for whatever reason), their stock is repurchased by the corporation (or by the Trust) at the Fair Market Value per share, as shown on the most recent annual appraisal report.

If the dollar amount is relatively small, the company will probably pay the departing participant in a lump sum amount. However the law permits the stock repurchase to be made in a maximum of six annual installments with the first installment due five years after the departure date. This enables the company to avoid a substantial unexpected drain on its cash resources and to spread those installments over an extended period. The actuarial record keeping service can provide the company with a list of anticipated future repurchases so management can properly budget for such contingencies.

Management that successfully markets the ESOP benefits to its employees and creates an “ownership culture” will be rewarded with a profit minded and loyal staff. Some companies take full advantage of the ESOP and find that their sales grow and profits increase as a result.

Where an ESOP is in place, the participants are not automatically entitled to company financial statements or tax returns. If the Trust owns more than 50% of the shares of stock, the participants are entitled to act on major company plans, such as the sale of the company.

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