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Leveraged ESOP

Ronald (Ron) Kerr's Profile

I am interested in expanding my knowledge base related to accounting for a leveraged ESOP. Please provide me a free source which will summarize the current FASB (codified, if available) pronouncements. Thanks.


Ernie Humphrey CTP
Title: CEO & COO
Company: Treasury Webinars
LinkedIn Profile
(CEO & COO, Treasury Webinars) |


I am not sure if I can help, but I prepared the annual financial statements for a leveraged ESOP for five years.

I would imagine that the actuary for your defined benefit plans would have some great free resources (and advice to share). I would look at the web sites of Mercer and Hewitt if they are not your actuary.

Feel free to reach out to me directly at EHumphreyatproformative [dot] com and I'll see if I can be of any assistance.

Best regards,


Ronald (Ron) Kerr
Title: Corporate Controller
Company: Electronic Recyclers International
(Corporate Controller, Electronic Recyclers International) |

Thank you. I will look at their website, and may contact you as well. I do not have an actuary as this is simply for my knowledge, and expanding knowledge.

Robert Smith
Title: Sr. Dir., Benefits Accounting
Company: Hertz
(Sr. Dir., Benefits Accounting, Hertz) |

It has been about 15 years since I looked at the accounting for one of these plans, but I advise you to avoid it if at all possible. The accounting is a nightmare. I worked at a very large telecomm company that had a trivestiture in 1990's, and their ESOP had to be split. A change in the capital structure adds to the accounting nightmare.

As I recall, the shares are released into employee accounts in proportion to principal repayments on the loan.

Ernie Humphrey CTP
Title: CEO & COO
Company: Treasury Webinars
LinkedIn Profile
(CEO & COO, Treasury Webinars) |

Amen on avoid a leveraged ESOP like the plaque, but sometimes you do ot have that luxury. Everyone wants to get out of the DB Business, but this not much of an option (if at all possible) once a Leveraged ESOP is in place as it must first "run its course".

John Jepsen
Title: Consultant
Company: Jepsen Consulting
(Consultant, Jepsen Consulting) |

How big a company/ESOP?

For a while these were all the rage for large publicly traded companies until stock prices ran up dramatically and the 'value' being released to participants was far greater than ever imagined whenthe plan was established. The accounting is not onerous. The unwind if it does not work as planned can be VERY expensive.

Robert Smith
Title: Sr. Dir., Benefits Accounting
Company: Hertz
(Sr. Dir., Benefits Accounting, Hertz) |

You will most likely have an employee windfall with an ESOP if you use it to fund, e.g., the company match on the 401(k) plan. this will affect your P&L.

AICPA 93-6 said, for example

Some employers agree to provide a specified or determinable benefit, such as a contribution to a 401(k) plan or to a formula profit-sharing plan, to employees and use the ESOP to partially or fully fund the benefit. Employers should recognize compensation cost and liabilities associated with providing such benefits to employees in the same manner they would had an ESOP not been used to fund the benefit. For ESOP shares committed to be released to settle liabilities for such benefits, employers should report satisfaction of the liabilities when the shares are committed to be released to settle the liability. The number of shares released to settle the liability is based on the fair value of shares as of dates specified by the employers, which are usually specified in the ESOP documents.

Achaessa James
Title: Product Manager
Company: National Center for Employee Ownership
(Product Manager, National Center for Employee Ownership) |

I spent four days last week in Minneapolis at the annual Employee Ownership Conference sponsored by The National Center for Employee Ownership and co-sponsored by the Beyster Institute at the Rady School of Management, UC San Diego. As the new Project Director at the NCEO, it was a hands-on opportunity for me to learn about the unique and eye-opening culture and practices of ESOP companies, as well as get a better understanding of what circumstances make other equity compensation instruments appropriate for use by ESOP companies (equity comp is my specialty). It was fascinating and informative but you’re all right, it takes a very special knowledge set to understand the accounting and administration of ESOPs.

If you’re looking for the best and most current information available on ESOPs, I suggest you check out the NCEO website – www . nceo . org The NCEO was founded in 1981 as a private, nonprofit membership and research organization and serves as the leading source of accurate, unbiased information on employee stock ownership plans (ESOPs), equity compensation plans such as stock options, and ownership culture.


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