This liability is due to a company’s obligation to pay participants and beneficiaries for their vested shares when they terminate employment or diversify.
RWG forecasts anticipated turnover and diversification requirements in order to conduct detailed repurchase obligation studies to estimate companies’ future cash flow. It is important for ESOP companies to plan early for this repurchase obligation.
It is equally important for companies to understand the variables related to the ESOP that have the largest effect on the repurchase obligation. These variables include:
Considering these and the many other variables, it is often best to include more than one scenario in the study to examine a range of likely outcomes. This gives companies the ability to analyze alternative ways of managing and funding the repurchase obligation.
Repurchase obligation can present a significant challenge to an ESOP company. Through our consulting services, we can provide the critical information that is needed to help ESOP companies operate successfully on a long-term basis.