The Qualifications and Requirements of an Effective ESOP Trustee

May 2, 2023

An essential step of forming an Employee Stock Ownership Plan (ESOP) is selecting an effective ESOP trustee.

Because an ESOP trustee is legally bound by both the DOL and the IRS to act solely in the best interest of the ESOP plan participants, the process of identifying, vetting, and selecting an ESOP trustee cannot be undervalued.  

ESOP Trustee Qualifications and Requirements

A hyper-competent ESOP trustee will not only have a working understanding ESOPs but will have an extensive experience in managing ESOPs. Aegis Trust Company Services recommends holding the below qualifications and requirements when selecting an ESOP trustee.

ESOP Trustee Qualifications

An effective ESOP trustee will be equipped with the tools to run an ESOP smoothly. Aegis experts recommend that any fiduciary candidates meet the following ESOP trustee qualifications:

First and foremost, the ESOP trustee must have a comprehensive understanding of the DOL’s and the IRS’s regulations on ESOPs, as well as knowledge of the Employee Retirement Income Security Act of 1974 (ERISA). A prudent and ethical fulfillment of these legal obligations is necessary.

An ESOP trustee must be qualified to hire an impartial ESOP valuation appraiser and be able to evaluate the appraiser’s valuation of the FMV of the company’s ESOP shares.

Additionally, in accordance with ERISA’s requirements, the ESOP trustee must be entirely free from any conflict of interest. If an ESOP trustee has conflicting interests, the legal integrity of the whole ESOP is at stake.

Furthermore, to ensure the ESOP does not risk lawsuits, an ESOP trustee must be familiar with ongoing management techniques and processes used in ESOPs. If the IRS or DOL requests documentation of compliance with regulations, the ESOP trustee must readily provide this information clearly and concisely.

Finally, an ESOP trustee should have the full confidence and trust of the board of directors, backed by a plethora of experience in ESOPs as well as a comprehensive understanding of the company’s unique goals and culture.

ESOP Trustee Requirements

An ESOP trustee stands as the essential legal shareholder of the ESOP trust shares. With this position comes very heavy responsibilities. Your ESOP trustee should also meet these ESOP trustee requirements:

An ESOP trustee must be able to continually retain an impartial ESOP appraiser and annually determine the EOSP stock price based on the stock valuation from the appraiser (read more on valuation methodologies and processes here).

All ESOP assets are under the management of the ESOP trustee. Thus the trustee must ensure the ESOP is maintaining proper documentation of all decisions, and the reasoning behind said decisions. Proper documentation shows complete compliance and fulfillment of the requirements set forth by ERISA. Meeting these requirements enable the trustee to prove that plan participants are properly protected.

As the U.S. Department of Labor states, the primary ESOP trustee Requirement “is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses.”

Where to find an indispensable and effective ESOP trustee

In short, an effective ESOP trustee serves as your company’s ESOP expert, maintaining the company’s stocks in an adept manner that is nonetheless legally compliant.

With extensive experience, Aegis Trust Company Services can meet and exceed the qualifications and requirements of an effective ESOP trustee. To find out how to hire Aegis as an ESOP trustee you can trust reach out to us here, or find more information on our trustee services here.

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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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