New Product Helps ESOPs Match Liabilities

Archford Capital Strategies launched an FDIC-insured, bank-issued, principal-protected investment to help employee stock ownership plans (ESOPs) match future repurchase obligations.

Archford says it identified a gap in traditional risk adverse investments that could be used to match future repurchase obligations (as well as health care, education or pension expenses). Working with large banking institutions to customize an existing investment product, it developed the Market Participation CD (certificate of deposit). The CD is designed to reduce risk by protecting the investment principal with FDIC coverage and participates in potential equity market index gains when held to maturity.

An ESOP is statutorily required to repurchase a departing participant’s shares (called a put) upon events like retirement or termination. To that end, the ESOP and its repurchase obligation are supposed to be managed in such a way as to ensure that the statutory requirements are met.

According to Archford, the Employee Ownership Foundation found “13% of companies surveyed said they would cease to exist because of the burden of future repurchase liabilities.” The National Center for Employee Ownership (NCEO) Repurchase Obligation Handbook also states that mature ESOPs (greater than 10 years) are currently repurchasing between 2% and 5% of their stock on an annual basis.

Archford’s approach to Market Participation CDs is meant to help ESOPs plan ahead to better meet future repurchase obligations. As companies increase in value and employees edge closer to retirement age, this needs to be planned for carefully. By laddering the Market Participation CDs, ESOP plan sponsors create an opportunity to keep pace. The CDs provide for the repayment of the principal in full at maturity (just like any traditional CD). By including a market component based on major indices (S&P 500, Dow and others), they hold the potential for capital appreciation similar to equities as well.

Archford received a favorable ruling from the Federal Deposit Insurance Corporation (FDIC) and a legal opinion letter on the application of the Market Participation CDs. This confirmed that ESOPs, defined benefit plans and defined contribution plans are able to take advantage of each plan participant’s FDIC Insurance coverage per financial institution.

Archford explains that when the investment goes through the ESOP trust and not a company’s balance sheet, FDIC insurance protection applies to every plan participant—what’s known as pass-through FDIC insurance coverage per financial institution. Because of the inherent complexity in managing all this FDIC coverage, Archford has licensed a proprietary cloud-based software program that does all the FDIC tracking, providing real-time situational awareness for sponsors of their exposure to any financial institution. More information about this software can be found at

Aimed at plan sponsors in primarily closely-held and middle-market C- and S-Corp companies, Archford Market Participation CDs are mainly designed to diversify portfolios, reduce risk and match investments to future liabilities.

Archford Capital Strategies, a private wealth management firm founded by James D. Maher and based in St. Louis, Missouri, offers financial services to clients and closely held businesses. It offers planning solutions for concentrated stock strategies, foundation management, retirement plan management, credit needs, and wealth transfer strategies. It specializes in business transition and works with closely held businesses on business valuation, buyer intelligence, ESOP structures, transition and liquidity strategies. For more information, visit