Managing an Employee Stock Ownership Plan (ESOP) involves much oversight. As a Plan Sponsor reviewing the reports provided by your Third Party Administrator (TPA) is very important. In this article, we will explain the elements plan sponsors should review when analyzing the various reports sent by your TPA to ensure compliance and accuracy of the plan administration.
Census:
- Total gross compensation and total hours match your records and includes all employees who were paid at any time during the plan year.
- Eligible compensation reflects the definition of compensation stated in your plan document.
- Does your document exclude any form of compensation such as bonus, commissions, or any other stated items?
- Does your document’s definition of eligible compensation exclude compensation prior to a participant entering the plan?
- Verify the reason for termination is accurate.
- Retired participants meet the plan’s definition of Normal or Early Retirement.
- Participants labeled as disabled meet the plan’s definition of Disability.
- Provide beneficiary information for any deceased participants.
- If your plan excludes any employees, verify they do not have eligible compensation.
- Excluded divisions
- Sellers who elected IRC Section 1042
- Union, leased, Non-resident aliens
- Verify all terminated employees have a date of termination.
ESOP Financials:
- The contribution is the same amount you are reporting on your corporate tax return.
- Distributions shown equal the total of distributions paid during the plan year.
- All accruals are being considered (contributions, expenses, earnings).
- If leveraged, the loan amortization schedule terms are reflecting the current internal loan terms and correct loan payments.
- The correct share value is shown.
Allocation/Summary of Accounts:
- Grand totals tie to the ESOP Financials.
- Spot check vesting for participants.
- Segregation of terminated participants is applied correctly, if applicable.
- The correct employers stock value was used.
Distributions:
- Distribution timing and eligibility tie to the most recent plan document or distribution policy.
- If installments are being paid, verify if minimum installment is applicable.
- Determine if cash or shares will be distributed.
- Verify length of distribution window (no less than 30 days).
