How can an ESOP resemble a defined benefit plan?
The ESOP can be written with a number of defined benefit plan characteristics; a. Participants can be given the option to take their retirement distribution the form of an annuity. b. A contribution formula reflecting length of service and/or age can be used to allocate contributions, provided that the formula is not discriminatory in favor of highly compensated employees. c. A “floor price” can be guaranteed by the company for the stock distributed by the ESOP. From the standpoint of company contributions, leveraged ESOPs and defined benefit plans both have contribution obligations. In the case of the leveraged ESOP, it is the amount required to repay ESOP debt, which could be spread over many years. Because of the size of the blocks of stock acquired by ESOPs, contribution levels to leveraged ESOPs are usually greater than contributions to defined benefit plans. As a result, the value of the stock in the ESOP could decline and still provide a benefit greater than that provided under
