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ESOPs
Posted on 5/14/13 at 1:52 pm
Posted on 5/14/13 at 1:52 pm
Anybody got any experience with working for a company that uses these instead of 401k?
Pros? Cons?
Pros? Cons?
3
Posted on 5/14/13 at 2:16 pm to HNTIGER1980
With the employee stock ownership plan, the company can borrow money with the trust. Once the company puts money into the trust, it can leverage that money and buy additional shares of stock. With other retirement plans, the use of leverage is not allowed. An ESOP provides incentive for the employee to work harder and perform better, because helping the company grow also helps grow the employee's wealth.
The problem, IMO, is you are only invested in your company. Which is risky. Even if you have confidence in your company's long-term potential, things can change. A 401k plan allows you to get money from your employer, but you can put the money into investments you choose.
The problem, IMO, is you are only invested in your company. Which is risky. Even if you have confidence in your company's long-term potential, things can change. A 401k plan allows you to get money from your employer, but you can put the money into investments you choose.
Posted on 5/14/13 at 2:28 pm to Vols&Shaft83
The company I work for recently went employee owned. Up to this point they have always given 5% salary towards retirement no matter what your contributions are. Current talks are that after paying the note to buy the company from the previous owners, there may not be enough to pay for bonuses and match this year. I like the idea of the ESOP, but not sure how appealing it is if I don't get my normal retirement contributions for the next few years.
Posted on 5/14/13 at 2:38 pm to MamouTiger65
Very little reason to do it if there isn't a match or at least a 15% discount. Never tie your retirement to only 1 company.
Posted on 5/14/13 at 2:45 pm to Vols&Shaft83
quote:
The problem, IMO, is you are only invested in your company
Absolutely. Thanks for the heads up partner.
Posted on 5/14/13 at 4:25 pm to HNTIGER1980
I worked for an employer that had both. Walked away with about 120k after about 12 years.
Posted on 5/14/13 at 4:46 pm to HNTIGER1980
The pros: your company won't be charged corporate income tax, which means they get a big boost for passing along ownership to you.
The cons: as others mention, your retirement is tied to the company's performance. It actually is a great incentive for the employees to have a vested interest in performing well but in practice it is challenging because you get no diversification and are exposed to risks affecting the company that are out of the employee's control.
The cons: as others mention, your retirement is tied to the company's performance. It actually is a great incentive for the employees to have a vested interest in performing well but in practice it is challenging because you get no diversification and are exposed to risks affecting the company that are out of the employee's control.
Posted on 5/14/13 at 9:49 pm to HNTIGER1980
All of my match goes into an ESOP, company stock. I don't even think about it.
Posted on 5/15/13 at 5:56 am to meeple
I have a general rule with regards to ESOPs. If the company matches, contribute up to the maximum % that they match. After that, fully fund Roth IRA, then after that 401k until you've contributed a combined 15% of income.
To simplify:
If your company matches 5%, and you make $100K/ year.
1st $5,000 in ESOP
2nd $5,500 in Roth
3rd $4,500 in 401k/Simple IRA
So easy a Vol fan can do it
To simplify:
If your company matches 5%, and you make $100K/ year.
1st $5,000 in ESOP
2nd $5,500 in Roth
3rd $4,500 in 401k/Simple IRA
So easy a Vol fan can do it
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