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ESOP Repurchase Liability Management

A new spotlight has been focused on repurchase liability planning due to an increase in mature, majority-owned employee stock ownership plan (ESOP) companies and an aging workforce. The competing need for cash flow in a successful and growing ESOP company can increase the challenge of honoring the "put option." Therefore, a passive repurchase liability management strategy or "pay as you go" approach may not be the most prudent method to address the obligation.

The ESOP repurchase liability should be considered in context with other benefit plan liabilities, company cash flow needs and cash commitments to non-ESOP shareholders. Nonqualified plans such as deferred compensation arrangements, supplemental executive retirement plans, stock appreciation rights (SARs) plans and "phantom stock" plans create an unfunded "promise to pay" by the sponsoring company. The ESOP repurchase liability and the nonqualified plan "promise to pay" each create a claim on future corporate cash flow.

The Principal Financial Group® understands the importance of maintaining your business as a viable, profitable concern. This information is provided to help you address your company's emerging repurchase obligation.

Download the full white paper (PDF: 603 KB)

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