Do you know who should be involved in your company’s ESOP valuation? If you’re a trustee of the ESOP, you definitely should.
The Department of Labor (DOL) and the Employee Retirement Income Security Act (ERISA) of 1974 require a business valuation at least annually for ESOPs.
Because an ESOP’s value impacts its participants and beneficiaries, it’s important to know who has a hand in the valuation process and how to bring each party together for a timely valuation.
Here are the four key players in the annual valuation and their respective roles in the process:
Trustees of the ESOP
ESOP trustees serve as the legal shareholders of the ESOP trust’s shares. They have many responsibilities, including, engaging a business valuation provider.
With the help of the final valuation report, trustees will determine the share price of the company.
Valuation provider
The valuation provider performs the annual valuation of the company.
After receiving preliminary financial statements and other information from the company’s management team, the valuation provider completes their analysis and provides a final valuation report to the trustees.
Third-party administrators
A third-party administrator or TPA is an organization that processes certain aspects of employee benefit plans. In this case, a TPA will administer pieces of the company’s ESOP.
After the trustees have set a share price, the TPA provides statements to plan participants that reflect the ESOP’s current value.
The TPA will also issue statements to any new participants if additional shares are allocated.
CPA firm
The company’s accounting firm will provide preliminary financial statements to the valuation provider.
After receiving the final share value from the trustees, the firm will finalize the financial statements.
A successful valuation requires participation from each party and open lines of communication. As a trustee, you need to know who your contacts are, what information they need, and how you can help each party to move the valuation process along.
You play a critical role in setting the share price and serving your ESOP’s participants and beneficiaries – make sure you’re well-prepared to do so.
Have questions about ESOP valuations? Let’s talk.
