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Mark Weisheipl, associate director of ESOP Finance at Bankers Trust Co. and Joe DeJong, Bankers Trust’s managing director of ESOP Finance.

ESOPs Put Employees In the Owner’s Seat

Building a successful business is tough. Selling it can be equally challenging. But there’s a way to find talented, dependable people to take over your company—and they’re right outside your office door.

Employee stock ownership plans—ESOPs—do what they say: Put the employees into the owner’s seat.

They follow federal laws that set up the framework for business owners to sell all or part of their business to the people who work for them. And those laws bestow ESOP deals with some decent tax breaks. If the company is a C corporation, for instance, the transaction can be tax-free to selling shareholders who take advantage of Internal Revenue Code section 1042. If the company is an S-corp this can put it on a more competitive footing by shedding its corporate income tax liability, thereby increasing its free cash flow to pay down debt, make acquisitions or prepare for the eventual payout of the employee owners.

Mark Weisheipl, associate director of ESOP Finance at Bankers Trust Co., said studies show employee-owned firms tend to outperform peers. And employee-owners like ESOPs as well because “they are four times less likely to lose their job in a downturn.”

ESOPs known to Central Iowans include Wright Service Corp. (Wright’s Tree Service) and Sammons Enterprises, which operates Sammons Annuity Group in West Des Moines. Hy-Vee Stores Inc. is a variation on the theme; not all workers participate in the ownership plan.

ESOPs seem to work well with firms that are heavier on employees contributing to the bottom line rather than hard assets, such as construction companies, architectural and engineering businesses, and consulting and professional staffing firms. Recently, the ESOP finance team at Bankers Trust assisted Kreg Tool Co. in Huxley as it transitioned to a minority ESOP-owned company. Joe DeJong, Bankers Trust’s managing director of ESOP Finance, said the bank is one of just a handful of banks nationwide that work on financing ESOPs. Outside financing is key, because the way an ESOP works is that the company borrows money to pay the seller.

It’s important that a selling owner runs a profitable concern. There’s no room in an ESOP to jettison a money-losing business onto unwary staffers and saddle the company with debt. Instead, it’s those profits that are used to repay the bank loan, and which are plowed into the investment pool that becomes the stock ownership credit for employee-owners.

There are a number of specialists who get involved in an ESOP sale—lawyers, bankers, independent valuation experts. In addition to all the paperwork, there is a cost, which one industry advisory pegged at $50,000 to $100,000. While that’s not a trivial sum, how much less would it be to accomplish an outright sale? And how would you know that the people you’re selling to are going to maintain the traditions and integrity that built up with the employees at hand?
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Legacy Bridge

You Can Still Make 2017 Contributions to Retirement Funds

Who says you have to get your income tax ducks in a row by Dec. 31 every year? For most workplace retirement savings plan deductions, you can stall 2017 payments almost to 2019 and still claim the deduction on your 2017 income taxes.

Take a SEP IRA (Simplified Employee Pension Individual Retirement Arrangement), for instance. This retirement account, which works for high-earning business owners, can have 2017 (deductible) tax year dollars poured into it as late as the tax filing deadline of April 18, or even Oct. 15 if an extension is requested.

2017 deductions also work into 2018 for Simple IRAs, traditional IRAs, Keogh Plans and solo 401(k)s. And in some instances the plan will not even have to be set up until this year and still qualify for a 2017 deduction. But in other cases (such as the Simple IRA) the plan would have to have been established during 2017.

Keogh plans (not so popular these days due to cumbersome governing rules) and SEP-IRAs are the most generous retirement savings plans, allowing more than $50,000 annually in contributions. Solo 401(k)s also work nicely, with annual contributions of up to $24,000 for the employee (you can be self-employed), and a partial match from your employer (which might be yourself).
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Whitfield & Eddy Law
801 Chophouse

Michael Happe, president and CEO, Winnebago Industries.

From the Business Record: Stock Watch 2017

The following stories appeared in the January 12 issue of the Business Record. The full insider articles are available to Business Record members only. Learn more

Apparently investors think we have an aging population that’s ready to retire, buy a new RV and hit the country roads for an outdoors adventure. Forest City-based Winnebago Industries Inc. topped the Iowa Index list of 22 Iowa-based publicly traded companies after a 2017 in which its stock price increased 75.67 percent. Winnebago’s stellar 2017 comes just one year after it posted a 59.05 percent increase, good for second place in last year’s analysis. We spoke with Winnebago's CEO as well as top executives with Heartland Financial USA and Meredith Corp. The bottom line: The Business Record’s Iowa Index, an unweighted average of 22 Iowa-based public companies, underperformed national indexes, mostly missing out on the record-setting year in the markets. While the Iowa Index increased 7.6 percent, 11 of the 22 companies saw declines in stock prices for the year. By comparison, the Nasdaq and Dow increased 28.24 percent and 25.08 percent respectively. Don’t fret too much. The five-year percentage change of the Iowa Index is 86.88 percent, right in line with the Dow at 88.64 percent, but trailing the Nasdaq at 128.63 percent. Members, click here to read the story.
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dsmWealth's Picks on What You Need to Know

  • Read what Warren Buffet had to say recently in Bloomberg News on the tax law, the stock market and the cryptocurrencies.

  • Of the many winners and losers in the overhaul of the tax code, one change makes real estate investors the biggest beneficiaries, while art collectors seem to have drawn the short straw, says Paul Sullivan in the New York Times’ Wealth Matters.


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