1. EMPLOYEE STOCK OWNERSHIP PLAN
Employee Meeting Template
Presented by:
YOU (Eventually)!
The following program is a template for an employee meeting introducing the terms and provisions of your ESOP. Requirements for customization are noted on each slide in the notes section as well as explanatory notes for the presenter. This template represents a continuous introductory meeting. Feel free to take individual slides or subsets of the program to use in any order you see fit. Happy communicating!

2. Agenda A history lesson for the future… What is an ESOP?
Why do we have one?
How does our ESOP work?
ESOP terms at-a-glance
How is value determined?
What can I do to affect value?
Questions, Questions, Questions
It is always important to have a specific agenda for each meeting. The time needed for the following meeting should be between 30 and 45 minutes and should leave another 15 to 25 minutes for questions and discussion. Exercises and games can be done separately or in the context of the meeting.

3. A History Lesson for the Future
It is often useful to give employees a sense of the History of which they are a part. The idea that employee owners would create better companies is not a new one. Modern notions of employee ownership began to emerge in the early 20th century when a number of enlightened companies (Procter and Gamble, Sears Roebuck, 3M and others) realized that it would be increasingly difficult to engage employees as the industrial revolution took hold. They began sharing ownership with employees as a way to keep employee loyalty and commitment when by giving them a real piece of the action. Employee ownership remained an “enlightened” notion of the few until the 1950s and an economist named Louis Kelso.
Kelso realized that in the second half of the 20th century, we would undergo a change in our economy as significant as the industrial revolution. Kelso believed that as companies became increasingly automated, employees who only had labor to add to the process of production would be able to earn less and less as labor became less and less important, and the real wealth would all be earned by the people who owned the machines and factories that would be more and more valuable. Kelso also foresaw that without capital ownership most of the population would be left behind in the quest for security, so he began to sell the notion that during each employee’s career, he or she should have an opportunity to earn capital ownership as well as their salary. He was a very persuasive person, and so his ideas caught on with a number of San Francisco Bay Area businesses, but the notion of employee ownership remained an individual regional phenomenon until in the early 70s when Kelso met some very influential Washington politicians.
In the early part of the 1970s the biggest job facing Congress was an overhaul of the U.S. Labor law. The statute that eventually codified all the changes was called the Employees’ Retirement Income Security Act (of 1974). During the consideration of ERISA, Senator Russell Long became interested in Kelso’s ideas and included a legal framework for creating programs that filled Kelso’s vision of a country populated entirely with comfortable capitalists (not by forcing everybody else out, but by opening up capitalism to everyone in a way it had never been open before) and the result is the body of laws that encourage and allow Employee Stock Ownership Plans to exist.
At the time of ERISA there may have been a few hundred employee ownership companies in the U.S. but since that time the number has grown to over 10,000 (depending on whose number you use) covering millions of new worker capitalists and holding hundreds of billions of dollars worth of company stock for their future security. Kelso’s vision is at work in all your companies and his economics are working. ESOP companies are more profitable than other companies; ESOP Company employees are better treated than other employees and their retirement benefits are roughly 3 times what you would otherwise expect for employees in their positions.
The attractive logo you will see in the lower right corner of the slides represents the 30th Anniversary of The ESOP Association (started in 1978) which represents the interests of those thousands of ESOP Companies in fostering and protecting the legislation that allows this great program to exist. This program is a gift from the Association.
ESOP and employee ownership is more than just a retirement plan; it is a movement for the future.
1920's
1950's
1974
10,000+ ESOPs
Today
First Modern
Employee-Owners
Louis Kelso
ERISA
Russell Long and
Millions of Employee-Owners

4. On average, ESOP companies have…
Faster Growth Companies with ESOPs grow 2.3% to 2.4% faster measured in sales, employment, and productivity growth.
Higher compensation 5-12% higher wages than in comparable non-ESOP companies.
More assets ESOP employees have 2.5 times the retirement assets in company- sponsored plans.
Improved company stability Less likely to face bankruptcy or acquisition; 20% better “survival” rate.

5. What Is An ESOP? Employee Stock Ownership Plan
An ESOP is a retirement plan (just like a pension, profit sharing or 401(k) plan) with two significant differences:
An ESOP is designed (in fact, required) to invest primarily in our own Company Stock; and
Our ESOP can borrow money based on the credit of the Company to buy stock.
To help people understand what the ESOP is we can refer to programs they are very familiar with like your 401 (k) Plan or Pension plan. ESOPs are just retirement plans (contributions are deductible for the company, there is no taxable income for the participants, and accounts grow without tax until they are taken out). But, the ESOP has two very significant differences: unlike all other retirement plans (that are prohibited from investing in employer stock) ESOPs are required to invest in stock of the company that sponsors them; and also unlike all other retirement plans (that are prohibited from borrowing money or involving themselves in any way with any party in interest) ESOPs are specifically authorized to borrow money to purchase stock and specifically authorized to use company contributions to repay that debt.
These two advantages of the ESOP create a very flexible tool that can be used to accomplish a variety of corporate objectives, but the underlying reason ESOPs exist and the ultimate result of accomplishing those objectives is the attainment of Kelso’s vision of the future – a world in which everyone can count of the earnings of productive assets (capital ownership) for their security.
This is a good place to digress a bit and be sure all your employees are familiar with the concept of stock – that it represents an ownership interest in the company and that it is not cash invested at interest or anything like that. Stock is a minute by minute reflection of the current value of a company, and the value of a company is a direct reflection of how profitable it is or is likely to be in the future. As such, the value of stock and therefore the value of the ESOP can go up or down in as the company grows or fades.

6. How Do Companies Benefit From ESOPs?
ESOPs Help Companies:
Increase employee motivation and productivity
Achieve faster growth
Provide tax benefits to selling shareholders
Accomplish business succession planning with pre-tax dollars
Transition ownership of the business without damage to operations
Take advantage of significant tax benefits as operating ESOP companies
ESOPs are a very effective vehicle to accomplish a wide range of corporate objectives:
Shareholder liquidity
Growth through acquisition
Business succession
Employee benefit
Ownership culture
You might wonder why companies would adopt ESOPs. Well, the research indicates a number of good reasons. In terms of operating companies, the research shows that Companies that practice Employee Ownership do better than other companies on measures of employee motivation and productivity, profit and growth, and are generally more likely to be successful than other companies. The law encourages companies to adopt ESOPs by providing tax benefits to shareholders who sell to ESOPs (as opposed to outside buyers or investment groups), and it helps employee ownership companies be more competitive through tax advantages when paying off debt and operating as an employee owned company (which can be structured to be operated virtually tax-free).
Putting all that together, ESOPs can be used to accomplish a wide range of objectives as listed above. All of those efforts are facilitated by the ESOP’s unique financial advantages.

7. How Does An ESOP Work?
Each employee who meets certain basic eligibility requirements has an account in the ESOP trust
Each year, the company may contribute to the ESOP, and the trustee will either buy stock directly for employees or make a payment on ESOP debt
Shares that are purchased (or paid for) are then added to participants’ accounts (either as a uniform percent of pay or as earnings on shares previously allocated)
On retirement, death, disability or following other termination of service, employees are entitled to receive their vested shares (or the cash value)
After all is said and done, though, the ESOP operates like any other retirement plan. Employees meet eligibility requirements (specifics of your plan will come later), and they have accounts in the ESOP. Contributions to the ESOP are generally made by the company based on profitability, and they may be in the form of either cash or shares of company stock. Where cash contributions are made to the ESOP, the ESOP will use them to either buy company stock directly for employees’ accounts or will make payments on any ESOP loans that may be outstanding. Shares of stock that are purchased or paid for are added to participant accounts based on relative compensation and held in the plan until the participant retires or reaches another of the events that trigger a distribution of benefits at which time the value of their shares is distributed to them.
Remind the participants here that their account contains stock of the company so the value to them at the end of the process is a reflection of how successful the company is in the mean time.

8. Important Terms (A Group Project with Your SPD)
Plan Year:
Participant:
Allocation:
Vesting:
Forfeiture:
Valuation Date:
Service:
Others?
There are a lot of terms that are important to help participants understand how the ESOP works. This is a list of the ones that most often cause confusion. Don’t hesitate to add to the list from your own experience, but these are a good start. If you are working with a small group and you have handed out the Summary Plan Description (“SPD”), you might want to make it a group project to figure out what these terms mean. If the situation doesn’t allow that, you may just go on to the next slide and fill in the answers.

9. Important Terms Plan Year: The accounting period for the ESOP
Participant: An employee who has met the eligibility requirements and entered the ESOP
Allocation: The annual process of determining each participant’s entitlement under the ESOP
Vesting: The process of earning a right to benefits through service to the Company
Forfeiture: The non-vested portion of his or her account that is left behind when a participant terminates before completing the required vesting service
Valuation Date: The date each year on which the Company Stock’s value is determined by the independent appraiser
Service: Time employed by the Company. There is usually a different service requirement for entry, allocations and vesting
Others: ????
These are simple, but, for most plans, accurate definitions of the terms your participants will need to understand in order to understand their benefits under the plan. If any of these terms are different for your plan, feel free to change them, but be sure you do so with reference to your official plan document (which is where these terms can be found).

10. Why Do We Have An ESOP?
To provide for the orderly retirement of a founder over several years.
To create liquidity for a shareholder without selling the Company.
To create a stock based employee benefit that provides benefits for employees that are directly related to the success of the Company
To create a program of ownership that will enhance all of our stakeholders’ future value.
To provide an employee benefit that is cost effective and aligns employee motivations with those of the shareholders.
This is an assortment of the most common reasons why companies have ESOPs. It may well be that all of them apply to you, or it may be that only one or two apply or even some other reason like “We were acquired by an ESOP Owned company” (which is getting more and more common). Especially if you have a new ESOP, here is where you can do the most to allay fears and concerns.

11. How Do ESOPs Benefit Employees?
The ESOP is fully funded by the company
Employees develop ownership without investment of their own funds
ESOP accounts grow on a tax-deferred basis
ESOP ownership creates no liability for employee shareholders
ESOP benefits are protected from creditors
ESOPs allow employees to share directly in the success they are helping to create
It is good to clearly point out all the benefits to employees as well. That the ESOP is fully funded by the company and that the value will grow on a tax deferred basis are usually pretty well known. It is less well known, but still important that the ESOP benefit may well be their only significant asset that would survive a personal bankruptcy. ERISA protects retirement benefits from claims of creditors (except for your ex-spouse) so your ESOP balance may be the only thing you would have after a severe financial problem. This also means that you cannot use it as collateral on a loan or in any way compromise the value of your ESOP account until it is paid out to you. The point of the ESOP is to provide for participants’ future security by protecting their interest in the company and holding the value that is created securely for their future.

12. The Basic Non-Leveraged ESOP
Basic ESOP Funding Structure (an Example)
Company
Contributes cash or newly issued
shares to the ESOP
Purchase Shares
At Current FMV
ESOP Trust
Build Employee Equity Over Time
Shareholders
The next few slides represent illustrations of how ESOP funding works in most cases. This slide represents the funding path for a non-leveraged ESOP. The Company contributes to the ESOP out of its profits and the ESOP buys stock for employees’ accounts.
Pick whichever slide works for you and delete the others (or keep them for future reference).

13. How Does a Leveraged ESOP Work?
Leveraged ESOP Transaction Structure (an Example)
Typical Term Loan
Company
Lender
May Be Longer or
Shorter Term
Shareholders
Shares
ESOP Trust
This slide represents the flow of cash and stock in a leveraged ESOP. Cash flows from the lender to the company to the ESOP and then on to the shareholders. In return, the ownership of the company represented by shares of stock comes back to the ESOP and is held for employees. It is important to make clear to participants that at this point, the ESOP has no value (Stock Value is Equal to Debt so total value is $0).

14. How Does a Seller Financed ESOP Work?
ESOP Financed by Selling Shareholder(s)
Your Company
Contributions,
Loans or Earnings
Shareholder
Purchase Shares
And Makes Payments on ESOP Loan
Shares Are Added to
Participant Accounts
as the Debt is Repaid
ESOP Trust
Where your shareholders have financed the debt themselves by accepting promissory notes from the ESOP as payment for the shares, the ESOP will work as illustrated above.

15. How Stock is Allocated to Your Account?
$ Term Loan Repayment
Company
LENDER
$ ESOP Loan Repayment
ESOP Trust
$ Fully Tax Deductible
Contribution
Stock Allocations
Suspense Account
Participant Accounts
Year 1 2 3 4 5 6 7 8 9 10
Shares are Added to Your Account Each Year as the Debt is Repaid.
This slide illustrates the process through which an leveraged ESOP causes shares to be added to participant accounts. The company pays back the lender independently of the allocation of shares. Each year, the company makes contributions or distributions of earnings to the ESOP and the Trustee, in turn, makes a payment to the company on the ESOP debt. As each payment is made, the shares that have been “paid for” are added to participant accounts. In this case, “paid for” is a concept provided by the Internal Revenue Code and Regulations called the “release of shares”. At the time the ESOP loan is entered, all the shares go into what is called a Suspense Account and they stay there as long as the debt associated with their purchase is outstanding. As the company makes payment on the loan, the shares are “released” and allocated to participant accounts, generally, as a uniform percentage of pay. The “release” may be based on either principal reduction of the loan or the combination of principal and interest on the loan depending on the terms of the loan involved and the company’s election. Once shares have been allocated to employee accounts, though, they belong to the participants. They can never go back into the suspense account.

16. ESOP Accounts Grow!
Each year, Employees who qualify have shares of stock added to their accounts
Employees become vested in their shares based on years of service with the company
Since the ESOP is invested in Company Stock, its value reflects the value of the Company
As the company grows in value, ESOP shares grow in value based on independent appraisal of fair market value
So, in the end of the day, there are several factors that influence how much value a particular participant will get out of an ESOP. Qualify to enter the plan and receive an allocation of stock and remain in service long enough to become vested are the two factors that employees directly control. The value of the underlying shares, of course,is the basis for the value the participants eventually receive.

17. What is the ESOP’s Role in Management?
The ESOP is Represented by the Trustee
Shareholders Elect
The Board Of Directors
Non-ESOP Shareholders Vote Directly
The Board of Directors is the elected Body Responsible for the Direction of the Company
ESOP TRUSTEE
- Is Appointed by the
Board of Directors
- Is An ESOP Fiduciary
- May be an Institution
or Individuals
- Is the Legal Owner of
Shares
- Votes Shares on All
Matters (including
Election of Directors)
- May solicit voting
instructions from
Participants on major
issues.
In order to Operate
The ESOP or Assist
Communication, the
Board May Make Use of
Advisory Committees
Board of Directors
Usually, the company joker comments somewhere here that since he or she is now an owner, they want to take a moment and move their car up near the front door (or go play golf or something similar). That’s in fun of course, but it is important that the governance matters related to the ESOP are made completely clear.
The company is and will continue to be overseen by a Board of Directors. If you don’t know who your Board of Directors is, you should find out. The Board is the group that oversees the operations of the Company, specifically the actions of the highest level of management. One of the Board’s functions is to appoint the Trustee who will be caring for the assets of the ESOP. For all legal purposes, the Trustee is the owner of shares of stock held in the ESOP. Participants are not “shareholders” in a strictly legal sense (and that is the reason this valuable asset cannot be taken away from them in a bankruptcy). Participants are beneficiaries of the Trust that is overseen by the Trustee. One of the functions of the Trustee, as the owner of the shares, is to vote where shareholder votes are required. The most common shareholder vote is done each year to elect the Board of Directors. So the circle of authority is – the Board of Directors appoints the Trustee of the ESOP and the Trustee votes the shares of ESOP stock in the election of Directors.
When people first hear of this the cynical ones will give the Ah Ha! as though they have found the smoking gun. The fact is that this is not a loop hole; it is an intentional part of the planning that allowed ESOPs to exist. The structure above has to do with the management of companies. The original ESOP visionaries had no intention of changing how companies are run – they just wanted to assure that the value that was being created would be more widely distributed. No one at that time would have disputed that U.S. Corporations were better run than any in the world, and that may be true in many ways even today. The objective of the ESOP movement was to encourage the redistribution of value and wealth, not create a new form of company that required consensus and group action to operate, so this method was included in the original design to assure that U.S. Companies adopting this form of ownership would not be any less efficient than companies that are more traditionally owned.
That does not mean that employees are in trouble in this system. On the contrary, the role of Trustee is one that is highly regulated, and, as you will see a few slides down the road, having a Trustee on your side is a very good thing.
Appoints Officers & Determines Compensation of Company Management
- ESOP Administration
- Communications
- Other Committees
OFFICERS MANAGE THE COMPANY

18. Who Controls an ESOP Company?
ESOP is a vehicle to share value, not corporate control
Shareholders elect the board of directors
The board of directors appoints the ESOP trustee
The Trustee is the shareholder for all legal purposes and is charged with the responsibility to protect the value for participants
The Trustee votes the ESOP’s stock
As the Trustee determines in closely held companies;
As directed by participants in public companies;
As all participants direct on major corporate issues
Mergers, sales of all assets, recapitalizations, etc.
So, who controls an ESOP Company? The answer is that control of an ESOP company is very much like control of any other company. The wealth, on the other hand, is widely shared.

19. ESOP AT - A - GLANCE Become an ESOP Participant:
Employees become ESOP participants on _________ after:
???
Except Leased Employees, Independent Contractors and Union Employees.
Qualify for an allocation of the Contribution:
The next few slides relate to the actual operating provisions of your plan. You will need to consult your Summary Plan Document in order to customize them to fit the terms of provisions of your specific ESOP.

20. ESOP AT - A - GLANCE Become 100% vested:
Upon retirement (DEFINE), disability, death or
Based on years of vesting service (DEFINE beginning DEFINE).
Vesting Service at Termination Vested Percent
Less than 2 years % 0%
% 0%
% 100% % %
6 years or More %
Non Vested Stock is forfeited after termination and reallocated to the ESOP Trust.
This slide contains the two statutory vesting schedules currently in place. Because of the Pension Protection Act, you may be using more than one schedule in your plan. This slide needs to be customized to contain all the relevant information about your plan’s vesting provisions.

21. ESOP AT - A - GLANCE
Participants will be entitled to begin receiving a distribution of the fair market value of ESOP stock:
During the year following the year of retirement, disability or death, or
Within the year that includes the 6th anniversary of termination for other reasons, or, if later
Following the end of the year in which the last ESOP loan payment is made.
Benefits will be based on independently determined fair market value at the time your stock is cashed out.
This slide illustrates the legal maximum deferral of distribution timing. If your plan provides something else, the slide will need to be amended accordingly. If your plan is set up like many in that the terms in the plan are as above, but the practice for some or all distributions (generally based on the amount of money involved) is to accelerate vesting to an earlier time, you may describe that in the meeting, but it is not a good idea to publish it as that publication is likely to come back to you as a commitment and you may not want to establish that commitment.

22. IT’S ALL A MATTER OF VALUE!
IN THE END,
IT’S ALL A MATTER OF VALUE!
We’ve talked a lot about value and stock in this meeting. In the end, the value of the company is all the ESOP has to offer. So, let’s look at how value is determined.

23. How is Value Determined?
Independent Fair Market Valuation
The valuation process:
Determine the value of all our assets,
Analyze the Company’s past performance,
Compare us to similar reporting companies, and
Compute a present value of our future earnings.
The appraiser issues a report to the ESOP for review and approval.
The per share value you see each year is the result of this process.
Valuation is an old and very well explored science. Having said that, there are not a lot of firm and rigid rules on how it is done. In the ESOP world we rely on the opinion of value that is established by professionals who have experience and training to determine how much our company would likely sell for to a buyer similar to the ESOP, and that value is what we use for all ESOP purposes. The methodology generally includes the items listed above and appraisers generally weight factors differently depending on the situation. Two significant points that need to be made to participants:
The Appraiser is independent of anyone else involved in the ESOP; he or she does not work for the company or the shareholders or any of the other service providers and is therefore free of any conflicts of interest in determining value;
The Appraiser is retained by and his or her product is delivered to and owned by the ESOP through its Trustee. Those are the two factors that guarantee the fairness of the value that is used.

24. An Exercise in Valuation
Let’s Try Our Hand At Valuing Something Fun!
You can use this exercise in a variety of ways. The best seems to be to divide the room into groups of Owners and Buyers and let them go through a negotiation over the sale of Harry the Horse. We use a racehorse because most people are not familiar with what racehorses are worth and will intuitively follow a process very like what the ESOP appraiser does to value your company. Of course, you could come up with some other commodity to value, but whatever you do, stick with something that will be unfamiliar to most people and fun to talk about. I did it once with a traveling carnival and that was a blast (arguing about the useful life of a lizard boy and the expenses of maintaining a bearded lady), so don’t be afraid to be creative. The point is to get the participants to go through the thought process that determines value for your ESOP.
By the way, I borrowed this exercise from Corey Rosen, of the National Center for Employee Ownership, a number of years ago, and I have been giving it away ever since as it is fun and very useful. If you see him, thank him for the gift (but don’t tell him why…he needs a little mystery in his life).

25. The Tale of Harry the Horse
Harry is a 4 year old race horse
Harry is owned by a syndicate of 5 investors; one owns 60% and each of the others own 10%
Harry raced 17 times in the last two years and won $300,000
The annual cost to keep Harry in feed and board is about $250,000
Harry is for sale because two of the minority investors are pressing the syndicate to buy them out
There is no complete agreement among the syndicate members on the price the horse should bring, nor is there complete agreement as to whether he should be sold at all
Start with some information about Harry that could be used to get a value worked out. There is obviously a lot of other information that you don’t have here, like the cost of keeping the average race horse and how long a race horse can race. Have your participants keep a list of the things like that that occur to them as they discuss this project and make assumptions for the purpose of the exercise. You’ll find that they are making assumptions about the same things your appraiser is researching in your annual appraisal.

26. Willing buyer and willing seller meet…
What affects Harry’s Value?
Do past earnings indicate future performance?
What is the “useful life” of a horse?
What are other horses trading for?
Are you getting control of all the winnings?
How much profit is Harry really making for the syndicate?
Is $50,000 the “real Profit” number?
What about their initial investment?
What about other types of expenses?
What are the industry considerations for you as a buyer?
Do you know the ins and outs of horse racing?
This slide is basically a discussion of the process and some guidelines on how the attendees ought to be thinking in their capacities as buyer or seller. I have sometimes had the room select a third group of “advisors” or “horse brokers” to throw into the mix and that changes the dynamics of the project considerably. It also tells us a lot about what people think of “advisors” and “brokers” and it isn’t very pretty. The point with this exercise is to get as lively a discussion of the valuation process going as possible and then break the people into buyer and seller groups and have them come up with an asking price and an offer.

27. Or put another way, what would YOU pay for Harry?
The end of the exercise is to have the two groups come together and try to negotiate a price for the horse. This discussion will generally follow the logic you have explored and the process the appraiser is trying to follow. It also raises some real issues that you can address. No matter what the appraiser says the stock is worth, if the owner wants more, there will not be a transaction. The ESOP may not pay more than Fair Market Value as determined by the appraiser, so there is a real negotiation that goes into ESOP deals.

28. So What Does That Mean to Me?
We May Not Be Able to Influence:
Changes in the business cycle
Overall Economy
Natural Disasters
But Most Keys to Value are in Our Power:
Increased Productivity
Reduced Waste
Customer satisfaction
This brings the discussion about Harry home. There are many things that employees can’t do anything about. That is true, but most often the discussion of how employees affect value is limited to that. In every ESOP Company every employee can affect the bottom line and therefore the value. It is beyond the scope of this introductory meeting, but you can use the concept of margins to show employees how waste is a more important factor in profitability than revenue is. How would you do that? Well if you are in a business that operates on a 4% profit margin after all is said and done, $400 of waste is the equivalent of $10,000 of revenue. Is it easier to prevent $400 of loss or generate $10,000 of new revenue? Employees can really get the notion if they are just displayed and if you take them to the next level and illustrate how those contributions to the bottom line affect value you can really start to see people taking the notion to heart and changing their behaviors accordingly.
What else do you do that affects Company
Performance? Value? The Future?

29. Retirement Safeguards Under ERISA
MPLOYEES'
ETIREMENT
NCOME
ECURITY
A CT 1. 2. 3.
SPONSORS ARE FIDUCIARIES
Minimize Risk of Loss
DISCRIMINATION NOT ALLOWED
Required Coverage
Consistent Participation
Reasonable Schedule
Vested Means Non-forfeitable 4.
VESTED BENEFITS PROTECTED
THE PERFORMANCE OF THE FUND IS NOT GUARANTEED
-BUT-
No Self-Dealing
EXCLUSIVE BENEFIT RULES
ESOP BENEFITS ARE YOUR BUSINESS!
We mentioned ERISA in the very beginning, and we close with it. ERISA is an elegant piece of law that protects U.S. workers in ways that are unheard of around the world. ERISA is an incredibly complicated law, but it basically creates 4 types of guarantees that apply to retirement plans like our ESOP. First, ERISA requires the plan to be managed by a Fiduciary – that is someone who has a legal obligation to watch over and protect an asset that it is holding for someone else. The Trustee of the ESOP is a fiduciary appointed by the Board of Directors whose sole responsibility is to be sure that the plan is run for the exclusive benefit of plan participants. In that regard, the Trustee may not use the ESOP assets for his or her own self interest and must manage the plan (consistent with its nature) so as to minimize the risk of loss (which is subtly but importantly different from maximizing potential gain). In addition, ERISA created a very complex legal framework that assures that retirement plans, like the ESOP, cover a broad cross section of employees in a way that is fair and non-discriminatory. ERISA also imposed rules on the treatment of vested benefits that basically ensure that plans will have a reasonable vesting schedule and that once a participant has earned the applicable amount of vesting credit, his or her account will be vested and can never be forfeited, no matter what. Finally, ERISA created a body of rules that basically ensure that the plan will not involve itself in any transaction or other activity that is not for the exclusive benefit of the plan and its participants.
The ESOP is overseen by the Trustee and management and many advisers whose job is to see to the guarantees of ERISA, but the most important part is the value of the plan is not guaranteed. In an ESOP, the value of the benefit is a reflection of the value of the company and that is entirely up to you.

30. Add Shares to Participants’ Accounts Shares to Participants’ Accounts
How ESOP Benefits Grow
Annual Contributions
Add Shares to Participants’ Accounts
Forfeitures Add
Shares to Participants’ Accounts
In the next few slides you summarize and wrap up the presentation. How do you get benefits in the ESOP? Qualify for annual contributions and allocations of forfeitures that are left on the table by employees who leave before they become vested.

31. the Value of Participants’ Benefits
Your Interest Grows!
Vesting Increases
the Value of Participants’ Benefits
Continue to work for the company so that you become vested in your accounts

32. Means Growth in Participants’ Accounts
Value Affects Us All!
Growth in Stock Value
Means Growth in Participants’ Accounts
Work Smart and Watch Your Future Grow
But the most significant factor in the value of an ESOP account from year to year is the change in the value of stock. In many cases, the value increase is larger than the annual contributions (especially in leveraged ESOPs where the cost of the shares is fixed at the time of purchase and the value of shares in participant accounts is determined when they are released for allocation).
This is a good place to remind everyone that the value of the ESOP is everybody’s business.

33. Questions? Always allow for and answer any questions that come up.
Which brings us to one final observation for you as the trainer. No matter what your intentions, and in spite of evidence to the contrary, approximately 1 out of 10 people in any group will believe that you are trying to cheat them and they will act accordingly. That person is at every meeting, and that person will ask what they think are uncomfortable questions or they will brood silently giving you what my grandmother used to call “the hairy eyeball” (you’d have to have meet granny to get the visual on that, but I’m sure you know what I mean). I call these people the curmudgeons, and the sad truth is that you can almost never change a curmudgeon. But the even sadder truth is that if you take steps to get rid of that person (which you will want to do most of the time you have to deal with them), within a very short time, someone else in the group will turn into a curmudgeon to replace them. It is a necessary social role to be skeptical and cynical and the fact that the role is taken in your group frees up everyone else to enjoy the good things you are announcing. The moral for me has always been that I do not program to try to please the curmudgeons, but neither do I ignore them. I thank them in my heart for taking on that uncomfortable role and saving someone else from having to do it, and I embrace them. It makes me feel better and it confuses the heck out of them. Of course, you have to be careful about harassment rules and such, so your embrace might take some other form of a public acknowledgment of their contribution (I used to give out lemon drops to curmudgeonly questions, for example) but in the end, the best answer is just a clear and unvarnished truth without any embarrassment…unless you are doing something nefarious, and then look out! The curmudgeons are coming!
Whatever you do, have fun!