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PENSCO's Customized ESOP Transition Solutions: Case Studies

Terminating or modifying an ESOP plan can be complicated.  But establishing a custody solution that allows plan participants to maintain tax benefits if they continue to hold private stock doesn't have to be.

See the case studies below to learn how PENSCO makes it possible for ESOP plan sponsors to quickly and easily institute a customized custody solution for their employees.

ESOP Transition Solutions: Case Study 1

An ESOP Plan Sponsor Terminates its Plan and Distributes Cash

A software company with an ESOP plan is acquired by a private equity (PE) firm. Under terms of the deal, the software company’s ESOP plan is terminated, and plan participants are paid cash for their private stock. Employees are given the opportunity to reinvest their ESOP distribution into an LLC established by the PE firm, providing them with an ownership stake in the new company. But for employees to invest in the LLC without having to pay taxes or penalties on the distribution, the PE firm needs to work with a specialized IRA custodian that allows investors to hold alternative assets in retirement.

PENSCO’s Customized ESOP Custody Solution
In this fast-moving transaction, PENSCO quickly partnered with the software company and PE firm to develop a customized custody solution for employees who chose to roll their cash distribution into a PENSCO self-directed IRA. Within 30 days, PENSCO onboarded the LLC vehicle onto our platform, and seamlessly transferred cash distributions from the ESOP plan into newly opened PENSCO self-directed IRAs. The employees then directed PENSCO to purchase shares in the LLC within their self-directed IRAs, providing employees with a tax-advantaged stake in their new company while avoiding the need to pay taxes or penalties.

ESOP Transition Solutions: Case Study 2

An ESOP Plan Sponsors Terminates its Plan and Distributes Stock

Due to an acquisition, a packaging company decides to terminate its ESOP program and provide employees with their private shares. To avoid a taxable event or having to pay potential penalties on the stock distribution, employees under the age of 59½ must transfer those shares into an IRA that can hold alternative assets. For this scenario to succeed, the packaging company must work with a highly experienced custodian that can expertly handle the process of opening self-directed IRA accounts for employees and educating them on the process of owning private stock in a retirement account.

PENSCO’s Customized ESOP Custody Solution
PENSCO’s deep experience holding alternative assets in self-directed IRAs enabled us to work closely with key finance and operations personnel at the packaging company once the firm had made the decision to terminate the plan. PENSCO helped those employees in the year leading up to the ESOP termination with a custody solution. When the plan was terminated and shares were distributed, PENSCO offered an expedited IRA account opening and funding process for employees who chose to move their shares into a self-directed IRA. This streamlined account opening and funding process was immensely valuable to the packaging company, helping it to smoothly terminate its ESOP while allowing employees to continue to save for retirement in a tax-advantaged account.