Repurchase liability studies
relating to ESOP distribution and implementation.

The purpose of a repurchase liability study (RLS) is to project the emerging liability resulting from the company’s legal obligation to repurchase stock distributed by the ESOP to participants due to death, disability, retirement, termination or as a result of diversification as required by law and permitted under the terms of the ESOP.

Repurchase obligation is the liability a company incurs as a result of the requirement that it repurchase shares of stock distributed by the ESOP distribution subject to the “put” options required by law. The ESOP can also satisfy this repurchase obligation through cash distributions. The ESOP repurchase obligation represents a claim on future cash flows of the company. Just like other claims on future cash, the ESOP repurchase obligation needs to be quantified and included as part of the company’s cash projections. The act of attempting to quantify ESOP repurchase obligation is now as an ESOP repurchase liability study.


If your company has an employee stock ownership plan with privately traded stock, repurchase liability or obligation is an important issue that needs to be addressed.


Repurchase obligation is a complex series of issues unique to each company. It begins with what is or is not included in your ESOP plan document. The foundation is formed by the creation of a long range written ownership goal. This written document will state whether the company will redeem the shares distributed or whether the ESOP will purchase the shares and recycle them to the participants. An ESOP is really no better than its repurchase obligation plan. The selection of the funding strategy is an ongoing process which should be reviewed every 2-3 years, adjusted as needed, and communicated to the ESOP participants on a regular basis.

Affect on the Company’s Value

For stock not publicly traded, ESOP appraisals include a concept referred to as Discount for Lack of Marketability (DLOM). This measures the lack of liquidity measured against a publicly traded companies stock. Often, the person doing the ESOP appraisal will lower the company’s DLOM because the “put” option creates a limited market for the ESOP stock. This has a net affect of raising the appraised value of the company and what the ESOP can pay to purchase the stock. If the company does not und for repurchase liability, the appraiser, overtime, begins to increase the DLOM, thereby decreasing the value of the company.

What Does a Repurchase Liability Study Look Like?

The RLS gives the company needed information to identify the components of its repurchase obligation. However, the certain assumptions including turnover, disability and mortality are crucial. Key components include plan information, loan information, actuarial assumptions and projections, participant data analysis, stock appreciation analysis, stock market value analysis, employer contribution analysis, repurchase liability analysis, cash flow analysis, payout method analysis

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Repurchase Liability Studies Document Request Checklist
Representation Letter (To be altered with your information)