In any event, here are a few tidbits about ESOPs:
- They are qualified defined contribution retirement plans and are subject to all of the attendant rules plus a few that relate only to ESOPs
- ESOPs can be leveraged; i.e., they can be financed partially through loans
- Over-leveraging an ESOP can be disastrous. Companies that may have a decreasing population need to be careful to not borrow too much. ESOP lenders will almost always try to get the plan sponsor to borrow as much as possible.
- ESOPs can be a great tool for succession planning or estate planning (see, for example, Section 1042 exchanges).
- Nondiscrimination testing for ESOPs can be far more restrictive than for other qualified retirement plans.
- Private companies that sponsor ESOPs will have a relatively continual repurchase liability (to buy back shares from terminating/retiring employees). It is important that they have a good handle on this liability and associated cash flow requirement.
So, should you have an ESOP? I don't know. It takes careful analysis, and that analysis is different for each company.