ESOP Info For Newer EOs - Part 4

Share Distribution Each Year

The way this works is that each year some number of EOs retire or separate and their shares are bought back from them. When their shares are sold they go into the pot of shares to be distributed back to everyone who is still participating in the plan. The total quantity changes year to year obviously depending on who leaves and how many shares they had. This number can vary pretty wildly, sometimes the available shares are 1/2 the previous year or they may be double (or somewhere in between or above and below that). 

Per 26 U.S. Code § 409(b)(1)(B) ( https://www.law.cornell.edu/uscode/text/26/409 ) the shares must be distributed proportional to your total cash compensation (salary plus bonus) in relation to the total compensation of all participants in the plan. For the purposes of calculation your total compensation is capped per Per  26 U.S. Code § 401(a)(17) ( https://www.law.cornell.edu/uscode/text/26/401 ) with an inflation adjusted value per IRS Notice 23-75 (for 2024, https://www.irs.gov/pub/irs-drop/n-23-75.pdf ) at $345k. Anyone making above that value does not receive any additional allocation as the intent of ERISA is to not have highly compensated employees have an undue advantage of the majority of the plan participants. The calculation results in a share "allocation" that your account can then (automatically) purchase those shares with funds from your "cash" account. Purchases into your account will show up in Principal in June.

Now there are rumors or speculation that shares are distributed in some other way. I'd first off point to the laws I noted above which state that the available shares are to be distributed according to total compensation, but also you can search on MacCentral for "Shareholders Meeting FAQs" and the first hit of the search is a sharepoint site with information on how shares are distributed. There is also the "Summary Plan Description 2021" (most current version), on page 3 "Plan History" which has the same description.

The Board: Of the total shares of the company, 2% of shares are not part of the ESOP and are available to the Board that (at least to me since nothing is published on this) are distributed in a mysterious "black box" type of way. Those shares are not tax advantaged like the shares held in the ESOP.

Nobody gets extra shares within the ESOP: Of the shares contained in the ESOP, nobody is getting extra shares beyond the calculation based on their compensation as noted previously as part of being a certain level (Assoc / Sr. Assoc / VP / Etc). This would not be in line with the ERISA intent that highly compensated employees not have an undue advantage.