Rethinking 65: Guidance Considerations for Clients With Stock Compensation Plan
Stock compensation can be a powerful wealth-building tool, but also requires a smart long-term financial planning strategy to maximize the potential impact.
With updated AMT thresholds and SALT phaseouts in 2026, proactive planning can make a meaningful difference in equity compensation.
Employee ownership of companies has increased dramatically in recent years, and the U.S. Department of Labor says it is doing its best to assist that trend, as mandated by Congress. But the DOL says in a new report that it could do much more — if only Congress would fund the mandate.
The report to Congress by the DOL’s Employee Benefits Security Administration gives an overview of the growing trend of employee ownership and details EBSA’s employee ownership initiative. The report also discusses state programs that promote and assist employee ownership plans. Employee stock ownership plan (ESOP), the most common form, are gaining wider acceptance. More recently, employee ownership trusts (EOTs) and worker cooperatives are also taking hold.
During the 10-year period ending in 2023, the number of ESOP participants increased 8% to 15 million, as the number of plans stood around 6,500. (2023 is the most recent year for which data is available, according to the DOL report.) While participant growth has been modest, total assets held by plans increased 57% to $2 trillion during the decade. Average assets per plan grew from $197 million to $314 million.
Meanwhile, the number of worker cooperatives has more than doubled, and employee ownership trusts are also growing in popularity.
An ESOP is a trust that holds equity shares provided by the company on behalf of participants and beneficiaries, including current employees, retirees and those who have left the company. In a standalone ESOP, workers do not contribute funds, unlike 401(k)s. In many cases, the company must buy back the shares in an account when a vested employee retires.
Bradford Houchins, CFP®, wealth advisor at River Wealth Advisors, emphasizes that while ESOPs can be an effective tool for ownership transition and employee retirement savings, thoughtful planning is essential.
As bradford notes, “repurchase obligations … can put pressure on cash flow if not properly planned for in advance,” highlighting a key consideration for business owners evaluating these strategies.
His perspective reinforces the importance of integrating employee ownership plans into a broader financial strategy, ensuring both opportunities and potential complexities are fully understood.
Click here to read more on Bradford’s perspective:https://rethinking65.com/employee-ownership-plans-are-becoming-mainstream-dol/.
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