Client Situation
Resolute, a trusted financial advisor, was approached by a long-standing client-a local company for which Resolute provided fiduciary services and managed employee enrollment in the company’s 401(k) plan.
The company was recently approached by a private equity firm interested in acquiring it. This acquisition triggered the liquidation of the company’s Employee Stock Ownership Plan (ESOP) shares, presenting a critical decision point for employees: they needed to determine how to manage their ESOP shares within a tight timeframe.
Adding complexity to the situation, the private equity firm offered select employees the opportunity to purchase shares in the new venture. The company sought guidance from Resolute on how to best handle the liquidation of ESOP shares, the purchase of private equity shares, and the possibility of holding these shares in an IRA for tax advantages. With many of the employees having their net worth tied up in the company’s retirement plan, holding the new private equity shares in an IRA was going to be the only way for employees to purchase shares.
Resolute’s Value Add
1. Employee Education and Decision Support
Comprehensive Employee Guidance: Resolute provided detailed education sessions to employees at all levels, helping them understand the options available for managing their liquidated ESOP shares.
Pros and Cons Analysis: Employees were educated on the advantages and disadvantages of rolling their funds into an IRA, maintaining them in a 401(k), or opting for a cash distribution.
Tax Impact Planning: Resolute helped employees understand the tax implications of each option and offered tailored planning strategies to mitigate potential tax liabilities.
2. Facilitating Private Equity Share Purchase
Private Equity Opportunity: A select group of employees were given the chance to purchase shares in the new private equity venture. With many of the employees having their net worth tied up in the company’s retirement plan, holding the new private equity shares in an IRA was going to be the only way for employees to purchase shares.
Customized Custodian Solution: Resolute researched and found a custodian that allowed employees to hold private equity shares within Self-Directed IRA accounts. This solution aligned with the employees needs and allowed a number of employees to purchase shares.
1. Prevented employees from having to make sizeable withdraws from their IRA accounts and incurring significant tax liability to purchase new company shares
Seamless Transition: Resolute coordinated the sale of the ESOP shares, facilitating the movement of funds into the new IRA accounts designated for private equity investments.
3. Portfolio and Retirement Planning
Portfolio Diversification: For employees receiving a windfall from the sale of their ESOP shares, Resolute provided personalized portfolio management strategies, ensuring the new funds were well integrated into their overall financial plans.
Retirement Impact Assessment: Resolute worked with employees to show how the ESOP liquidation and potential private equity investments impacted their retirement plans. Some employees were pleasantly surprised to find they were in a position to retire early, all made possible due to the attractive private equity buyout of the ESOP Shares.
Access to Alternative Investments: For employees who met certain net worth criteria, Resolute offered access to alternative investments, such as private real estate, which provided additional diversification beyond traditional stocks, bonds, and private equity shares.
Outcome
Resolute successfully guided the company and its employees through the complex transition, providing critical education, tailored investment options, and portfolio management. Employees benefited from clear communication and actionable strategies, empowering them to make informed financial decisions.
The company valued Resolute’s holistic approach, which allowed the firm to maintain its trusted advisor role during a pivotal moment for both the business and its employees.
