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Repurchase Obligation FAQ

What is an ESOP repurchase obligation study?
Why is a repurchase obligation study needed?
When should the first study be conducted?
How often should a repurchase obligation study be updated?
What are the data requirements?
What is the process of doing a study?
What does the study include?
How long will it take?
How much will it cost?

What is an ESOP repurchase obligation study? Scroll to top
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, and is often integrated with a comprehensive financial model.

It should include multiple scenarios, based on a range of possible values for key variables


Why is a repurchase obligation study needed? Scroll to top
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 the first study be conducted? Scroll to top
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 a repurchase obligation study be updated? Scroll to top
A repurchase obligation study should be updated whenever the assumptions have become out-of-date or when there are significant changes in the employee census.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? Scroll to top
Census of participants and account balances. Plan document. Distribution policy. Most recent valuation report. Repurchase obligation questionnaire. Most recent Trust reconciliation.


What is the process of doing a study? Scroll to top
The typical work steps in a repurchase obligation study are as follows:

  • Collect and review data
  • Define planning issues and purpose of the study
  • Draft assumptions
  • Discuss and refine scenarios and assumptions (typically via conference call)
  • Model "base case" scenario
  • Identify issues and concerns, determine potential strategies
  • Model additional strategies and scenarios
  • Prepare and deliver report
  • Discuss and review results


What does the study include? Scroll to top
We deliver a comprehensive report with the following components:

  • Summary of findings and recommendations
  • 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? Scroll to top
Ideally, we like to allow ten to twelve 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? Scroll to top
We can generally provide an estimate after a brief telephone conversation with you.

Our fees for a study are based on the amount of time that we spend on the project. The cost will be affected by the number of participants in the ESOP, the complexity of the plan, the extent of the financial modeling that is required, and the number of scenarios.