Issue link: https://www.e-digitaleditions.com/i/704526
10 FEDA News & Views continued on page 12 W e've all done it, been behind the wheel and thought "what if." And Michael Keeling, the president of the ESOP Association, has witnessed the aftermath. He's been there when a company was thrown into disarray after a CEO or owner was killed in a car crash. "In the real world, sudden death hap- pens all the time in a number of scenar- ios," says Keeling, who heads one of the largest advocacy groups for employee stock ownership plans (ESOPs). "I've worked with companies that have had owners involved in tragedies and no real heirs to run the company, leaving those remaining to sort through the details of the estate—and who should lead. But a good business person thinks about succession, their heirs and their spouse. They're thinking about cashing in their chips because private company stock isn't tradeable." The owners of Curtis Restaurant Equipment, brothers Dan and Mike Curtis and their partner Bill Kottas, enter- tained thoughts of selling their Eugene, Oregon-based, business in the mid-90s after being approached by several com- petitors looking to bulk up via strategic acquisition. None of it ever took fl ight, though, because handing over the busi- ness to a competitor didn't seem to measure up to the legacy founders Bob and Jeanne Curtis and their sons had carved into local and regional markets. Nor did jeopardizing the futures of their employees, the majority of whom have been with Curtis for more than 20 years. in a trust. The company then makes tax- deductible contributions to the trust to repay the loan. Others worry about the cost of admin- istering the plan or fear that ESOPs are inadequate because they leave employees vulnerable and underdiver- sifi ed. Those, too, are misconceptions, says NCEO Executive Director Loren Rodgers. Business owners are far more likely to dig deeper to sell their business than to set up and maintain an employee ownership plan, he says. And as for employees being forced to heap all of their contributions on the shoulders of an ESOP, having one in place doesn't pre- vent a company from offering a 401K or any other retirement savings plan. Actually, it's a best practice among companies with ESOPs to have both, says Rodgers, adding that ESOP companies are more likely to have a 401K plan than those without the employee ownership label. A 2010 NCEO analysis of government fi l- ings by ESOP companies in 2008 found that 56 percent had at least one addition- When an ESOP Makes Sense Which is why, at the time, the three also considered investing in an ESOP but backed away from the idea because of concerns. "Maybe it was naiveté on our part or the people we spoke with about how their ESOPs were structured," says President Dan Curtis. "At the time, it didn't seem like it was a good fi t. We thought that our employees had to use some of their own money to buy their stock and, of course, that's not true." That's the problem with ESOPs. There's still a lot of confusion swirling around them, unlike other more popular retirement plans like 401Ks. According to the National Center for Employee Ownership (NCEO), another rea- son why many busi- ness owners shy away from ESOPs is because they think their employees can't afford to invest in them—when in reality, they do not have to use their own money to participate. An ESOP is a retirement plan funded primarily with company stock. Typically, a loan is used to buy the shares from the original owner, and those shares end up Why Curtis Restaurant Equipment Decided it was Time to Embrace Employee Ownership By Stacy Ward, Managing Editor fedastacy@verizon.net How an ESOP Works An ESOP is a kind of employee benefi t plan, similar in some ways to a profi t-sharing plan. In an ESOP, a company sets up a trust fund into which it contributes new shares of its own stock or cash to buy existing shares. Alternatively, the ESOP can borrow money to buy new or existing shares, with the company making cash contributions to the plan to enable it to repay the loan. Regardless of how the plan acquires stock, company contributions to the trust are tax-deductible within certain limits. Source: The National Center for Employee Ownership