Exploring the Trustee's Role in an ESOP: A Guide to Guardianship

April 23, 2024

Companies that utilize Employee Stock Ownership Plans (ESOPs) enjoy a culture of shared success and employee loyalty. There are also significant tax benefits to ESOPs as well as business succession advantages.

However, a successful ESOP must adhere to strict legal guidelines in order to reap these rewards. The responsibility for maintaining these standards falls to the ESOP Trustee.

Defining the Trustee's Responsibilities

An ESOP Trustee is an objective third party that has fiduciary responsibilities for the ESOP. There are two primary types of trustees in the context of an ESOP. 

  • A Transaction Trustee is appointed when an ESOP is formed, sold, or terminated. In this instance, the trustee’s role is to manage the transaction on behalf of the employees, ensuring share prices are fair market value and that the deal is structured in the best interest of participants.

  • An Ongoing Trustee acts as the plan's fiduciary. It has legal ownership of the company stock and must always act in the best interests of the plan participants and beneficiaries. The ongoing trustee’s job is to protect participants and improve the ESOP.

Ensuring Integrity: Trustee Responsibilities

An ongoing ESOP trustee manages the annual work that goes into administering an ESOP. The trustee is responsible for monitoring company performance, assigning a fair valuation to shares, and overseeing stock allocation to participants. 

Compliance and Oversight: Trustee Duties

As noted above, the work of an ESOP trustee also extends to ensuring adherence to legal regulations. The trustee will meet regularly with company management to audit the internal and external operations, ensuring that the ESOP navigates smoothly within the legal frameworks set by the Department of Labor and the Employee Retirement Income Security Act (ERISA). 

This also includes overseeing the ESOP’s annual share distribution and managing the buyback of shares, safeguarding the participants' interests first and foremost.

Looking for a Reliable and Experienced Trustee?

The ESOP Trustee's role is pivotal, ensuring that the vision of shared success and ownership is brought to life under a legally compliant umbrella. 

At Aegis Trust Company, we are dedicated to providing trustworthy, legally compliant trustee services to companies across the country. We embrace this role with the seriousness and integrity it demands, committed to the empowerment and protection of the participants’ interests. 

Our experience includes: 

  • Rigorous Compliance: We adhere to all regulatory requirements for ESOPs.
  • In-House Services: Our team includes experts in every area of ESOP transaction trustee services.
  • Steadfast Support: Aegis is committed to protecting and guiding ESOPs.

Reach out to our team to explore your options, today.

Ready to find out more?

Get in touch with us to see how we can help your company transition to an ESOP or provide ongoing trustee services.

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DISCLAIMER: The Articles displayed on this website do not constitute legal advice, nor do they substitute for the advice of qualified professionals. While the Articles displayed on this website are designed to provide information regarding the subject matter covered, we cannot guarantee the accuracy of any statements contained therein. If any legal advice or expert assistance is required, the services of qualified professionals should be sought.

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