EMPLOYEE OWNERSHIP OVERVIEW
WELCOME!
This brochure is intended to provide a high level overview of Rosendin’s Employee Stock Ownership Plan (ESOP). This brochure is not a legal document. The answers to any of your specific questions about eligibility and/or plan rules can be found in your ESOP Summary Plan Description (SPD).
WHAT IS AN ESOP?
ESOP is the acronym for an Employee Stock Ownership Plan, which is an employee benefit program governed by federal law. The ESOP provides employee-owners at Rosendin Holdings and its subsidiaries (Rosendin and Modular Power Solutions) with beneficial ownership in the company and is often referred to as an employee-ownership plan for this reason.
What makes the ESOP unique is that the employee-owners’ interests in Rosendin stock are held in a tax-advantaged trust. As employee-owners, your interest in Rosendin stock grows or diminishes in value, along with the company’s performance. Consequently, employee-owners at Rosendin have a vested interest in increased productivity, greater profits, and improved efficiencies because they are contributing to growing their own value in the company. Our growth as a company and its value are tied directly to our performance and our coworkers. We are all in this together!
THE ESOP CREATES A DIRECT LINK BETWEEN ROSENDIN’S INTERESTS AND OUR INTERESTS AS EMPLOYEE OWNERS!
HOW DOES OUR ESOP WORK?
The ESOP Trust receives contributions annually from Rosendin Holdings, and the amount depends on many factors. In our ESOP, employees do not contribute their own money. The amount allocated to specific employee accounts is based on the employee’s eligible compensation.
For example, if an employee makes $60,000 annually, and the ESOP contribution for the year is 10%, then the employee’s account increases by $6,000 (10% of $60,000 = $6,000).
This amount is used to purchase shares of company stock. Your account will grow tax-free while you are employed, based on changes in company value, contributions made to your account, or any dividends that are declared until the ESOP distributes your “vested” account balance to you. Tax questions arising from the distribution of the ESOP or any employee benefit plan are complex. When the time comes for you to receive a distribution, seek guidance from a tax professional. Please see our Summary Plan Description and Distribution Policy posted on the company intranet for specifics.
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LENGTH OF SERVICE INCREASES
VALUE OF AN EMPLOYEE’S ACCOUNT
The company can contribute to your ESOP account for each eligible employment year. As mentioned, the amount contributed each year may vary. The non-forfeitable right to all or a portion of an ESOP account is subject to a process called vesting. Each subsequent year of service increases the percentage an employee is entitled to receive when he or she retires or otherwise leaves the company. If the employee leaves before becoming 100% vested, they will receive that portion of their account balance to which they are entitled under the vesting schedule. Employee-Owners become 20% vested on the anniversary of their 2nd year of employment and vest an additional 20% each year until the anniversary of their 6th year, when they become 100% vested.
COMPANY GROWTH INCREASES
VALUE OF YOUR ESOP
Annual company contributions to the ESOP are not the only way an account can gain value. The company’s performance is also a factor in determining the value of the stock in an ESOP account. If the company continues to perform well, the value of the ESOP can also grow.
To illustrate how an ESOP account can grow in value, here is a hypothetical example. Assume that your ESOP account receives a company contribution of 10 shares of stock in year one. Assume, furthermore, that each share of stock is worth $100. That means the contribution has a value of $1,000.
In year two, an additional 10 shares will be contributed to your ESOP account. Does that mean the account is now worth $2,000? Not necessarily. If the company continues its success, there is a good chance the value of the stock will increase.
Using the same example, let’s assume the value of the stock increased by 5%. That means the 10 shares of stock contributed in year one now have a value of $1,050, which, coupled with the year two contribution, brings the value of the employee’s account to $2,100.
COMPANY ESOP YEARLY CONTRIBUTION GROWTH CHART
(EXAMPLE)
POP QUIZ
Using the same formula used for year one, two, and three, calculate how much the contribution amount would be in your ESOP account for year 4. Answer on Page 18
DETERMINING THE WORTH OF STOCK
Our Company’s stock is privately owned, which means that the stock is not traded on a stock exchange.
The per-share value of the company stock is based on an appraisal performed by an independent valuation firm.
The stock valuation is updated annually, and each employee-owner participant is informed of the stock value in their account.
When an ESOP participant retires or otherwise leaves the company and is eligible for a distribution, the value of the benefits distributed will be determined by the most recent valuation.
HOW CAN YOU BENEFIT AS AN EMPLOYEE-OWNER?
As an employee-owner, everyone shares in the company’s success and the pride of ownership. Employee-owners experience increased satisfaction in knowing their efforts and those of others can bring benefits beyond regular wages.
As everyone works smarter and improves productivity, the ability to compete more effectively in the market will also improve. That cooperation to ensure quality work can be a significant advantage in promoting company growth and profitability.
Employee-owner accounts have the potential to be significant compared to other employee benefit plans. The account’s value depends on several factors: compensation, company growth and performance, and annual company contributions.
If the company achieves its goals and sees steady increases, employees can see significant wealth accumulation when they leave the company. In turn, this provides employee-owners with a sense of security to look forward to more than they ever thought possible!
Participants in an ESOP are more resilient to shifting economics. A recent National Center of Employee Ownership (NCEO) study showed that average retirement savings for an employee-owner were more than double that of non-employee-owners. Furthermore, companies that offer an ESOP and a 401(K) plan showed a contribution difference of 260% over those that did not.
HOW DOES ROSENDIN BENEFIT FROM EMPLOYEE-OWNERSHIP?
When you come to work at Rosendin, you will see how our employee-owners take a vested interest in their work outcomes and roles within the company. Our employees are engaged in their work, and as employee-owners, we know our work directly contributes to the company and our profits.
The ownership culture is strong within Rosendin. The stronger the company is and the better it performs, the more the individual benefits from the increase in their ESOP account. In addition to the cultural benefits we receive, employee-owned companies provide more stability than traditional companies. We are not dependent on the stock market for our performance, and ESOPs tend to be less affected by rapid swings in the economy.
Also, S Corporation ESOPs like ours do not pay federal income taxes. This tax benefit allows the company to contribute to our employee-owners accounts, which grow tax-free until retirement.
Q. How much is taken from my paycheck each month to be part of the ESOP?
A: Nothing. Participation in the ESOP is automatic and at no cost to you!
Q. What do I have to do to participate in the ESOP?
A: Nothing. As a regular employee of Rosendin, you are automatically eligible as long as you meet the basic requirements:
1. At least 18 years of age.
2. Be employed by the company on the December 31st, following your date of hire. 3. You are not covered by a collective bargaining agreement.
Q. When will I receive the money in my ESOP account?
A: You’ll receive the vested balance of your ESOP account after you leave the company, retire, or become disabled. If you leave the company before retirement, the vested balance of your ESOP account will be distributed to you after two (2) years. If you have been an employee for at least 6 years, you are 100% vested and will receive the full amount in your account. Otherwise, with each full year of employment after the first, you gain 20% vesting in your account. For example, if you leave the company after 5 years, you would be 80% vested and eligible for a distribution of 80% of your account.
Q. How much will be added to my ESOP account each year?
A: The amount added to your account each year depends greatly on the company’s annual performance. The company is valued yearly based on performance, outlook, and market conditions. This equity value is divided by the total number of outstanding shares and broken down into a share price, which is the same for all employees. Employees then receive a contribution based on a percentage of their annual income, which is used to purchase shares of company stock.
Rosendin has developed an ESOP calculator that modestly projects an employee-owner’s future account by entering specific information, including years until retirement.
As with any forecasting tool, this is only a projection, and past performance does not predict future results. The calculator can be found on the company intranet site.
Q. How much will be added to my ESOP account each year?
A: This depends a lot on how the company does in a given year. Each year when the company is valuated, the company’s financials are gone through thoroughly, and a dollar figure for the company’s profit is determined. This is broken down to an easier to understand Share Price, which is the same for all employees. Employees receive a certain number of shares, based on a percentage of their annual income. We have an ESOP projection calculator online, where you can enter your specific information and see what projected ESOP balances could be in the future. For example, after valuation a share price of $100 is set and a contribution of 10% of annual income. For an employee making $100,000 per year, the ESOP contribution would be 100 shares, for a total value of $10,000.
Q. Can I take money out of my ESOP account early, or take a loan against it?
A: No, you cannot borrow money from your ESOP account. You will receive benefits after leaving the company, retiring, or becoming eligible for and electing diversification.
At age 55, and after completing ten (10) years of plan participation, you can elect to “diversify” a portion of the balance in your ESOP account. For more information on the diversification process, visit the ESOP tab on the company intranet site or contact an ESOP Trustee.
QUESTIONS? Reach out to your local ESOP Communications Committee Member, an ESOP Trustee, or visit the ESOP page on Rosendin’s intranet site.
