Journey to an ESOP & Beyond
ESOPs are gaining traction. In the "Journey to an ESOP & Beyond” podcast, Jason Miller and Makenzie Wirth explain the process of the ESOP transaction and address ESOPs from a business owner's perspective. They illuminate the simplicity of ESOPs and debunk common misconceptions that ESOPs are immensely costly and complicated.
Journey to an ESOP & Beyond
EP4 - Interview with Pete Shuler of Blue Ridge Associates
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What truly drives a successful ESOP transaction? In this episode, Jason Miller sits down with Pete Schuler, Senior Vice President and Head of Consulting at Blue Ridge, to share insights from more than 30 years of specialized ESOP advisory and consulting experience.
A trusted advisor on ESOP transactions and compliance, Pete has worked with companies across every stage of the ESOP lifecycle. Together, he and Jason explore the key “R’s” of an ESOP transaction, highlighting critical considerations around plan design, compliance, and transaction readiness. Drawing on his experience advising business owners, collaborating with investment banks, and leading complex ESOP projects, Pete offers practical guidance for business owners and advisors navigating ESOP planning and execution.
Interview with Pete Shuler of Blue Ridge Associates
Episode Summary
What truly drives a successful ESOP transaction? In this episode, Jason Miller sits down with Pete Shuler, Senior Vice President and Head of Consulting at Blue Ridge, to share insights from more than 30 years of specialized ESOP advisory and consulting experience.
A trusted advisor on ESOP transactions and compliance, Pete has worked with companies across every stage of the ESOP lifecycle. Together, he and Jason explore the key “R’s” of an ESOP transaction, highlighting critical considerations around plan design, compliance, and transaction readiness. Drawing on his experience advising business owners, collaborating with investment banks, and leading complex ESOP projects, Pete offers practical guidance for business owners and advisors navigating ESOP planning and execution.
Key Topics Covered
- Flexible ESOP plan design and why it matters
- Repurchase obligation and long-term cash flow planning
- Recycling, redemption, and account segregation
- Managing ESOP benefit levels
- Releveraging and ESOP sustainability
- Employee communication best practices
Transcript
Editorial note: This transcript has been lightly edited for clarity and readability while preserving the original meaning of the conversation.
Welcome to the Podcast
Jason Miller:
Welcome everybody back to the Journey to an ESOP and Beyond podcast, where we seek to make all things related to Employee Stock Ownership Plans accessible and understandable. I’m your host, Jason Miller, and today I’m joined by Pete Shuler.
Pete is going to walk us through the “R’s” of an ESOP transaction—what they are, why they matter, and what business owners need to keep top of mind as they plan for the future. Pete, would you mind taking a minute to introduce yourself?
Pete’s Background in the ESOP Space
Pete Shuler:
Thank you, Jason. I’m Pete Shuler, Senior Vice President and Head of Consulting at Blue Ridge Associates. I have about 30 years in the ESOP space, almost exclusively on the administration side. I spent several years at Grant Thornton, then 22 years at Crow, where I ran the ESOP administration group as managing partner.
I transitioned that group to Blue Ridge and am thrilled to be here and excited to talk about the “R’s” today.
Plan Design and Flexibility
Jason Miller:
When owners and founders think about ESOP sustainability, plan design plays a major role. What should be built into plan design early on to support the ESOP well into the future?
Pete Shuler:
The biggest thing I like to see in ESOP documents is flexibility. For example, language that allows for lump sums or installments, waiting periods when balances exceed certain thresholds, but doesn’t mandate them.
This flexibility allows companies to work with their third-party administrator to determine what’s right in any given year, while treating participants fairly and non-discriminatorily. Early in an ESOP’s life, balances are typically small, leverage is high, and distributions are minimal—so it often makes sense to pay people out quickly.
Repurchase Obligation Explained
Jason Miller:
You mentioned repurchase obligation earlier. For first-time listeners, how do you define repurchase obligation?
Pete Shuler:
Repurchase obligation is the legal responsibility of the company to fund distributions—specifically to buy back shares that are distributed from the ESOP. It’s really about honoring the retirement promise made to participants.
A repurchase obligation study typically looks out 20 years and projects when distributions will occur, how much cash will be needed, and why—whether due to retirement, termination, death, disability, or diversification.
Timing and Frequency of Repurchase Obligation Studies
Jason Miller:
When should companies complete their first repurchase obligation study, and how often should it be updated?
Pete Shuler:
Typically, we recommend completing the first study around the third or fourth allocation year. That timing gives companies enough runway to plan before distributions become significant. After that, updating the study every three years is a good rule of thumb, or sooner if there are major changes like rapid stock value growth or workforce shifts.
The only time repurchase obligation becomes a problem is when companies don’t plan for it.
Distribution Policy, Stock Value, and Growth
Jason Miller:
Because ESOPs are stock-based retirement plans, valuation plays a major role in distribution strategy.
Pete Shuler:
Exactly. ESOP stock behaves like stock—it’s valued annually. That’s why distribution policies need to consider where the company is in its growth cycle. Early on, paying balances quickly makes sense. As stock value grows, companies may shift toward installment payments or higher thresholds for lump sums.
The repurchase obligation study helps guide these decisions.
Account Segregation and Recycling
Jason Miller:
Let’s talk about account segregation.
Pete Shuler:
Account segregation—sometimes called conversion—is when shares are moved out of terminated participants’ accounts and converted to cash inside the ESOP. This locks in stock value and shifts future growth to active employees.
Recycling occurs when cash contributions or dividends are allocated to active participants and used to buy shares from terminated participants. Recycling can fund both distributions and segregation.
Redemption as an Alternative
Jason Miller:
How does redemption differ from recycling?
Pete Shuler:
Redemption removes shares from circulation entirely. It’s often used by mature ESOPs that are nearing contribution limits or managing benefit levels. Redemption can help control repurchase obligation growth but increases per-share value since fewer shares remain outstanding.
Each approach—recycling, redemption, or segregation—serves different strategic goals.
Managing to a Benefit Level
Jason Miller:
You also mentioned managing to a benefit level.
Pete Shuler:
Benefit level refers to the value allocated to participants as a percentage of compensation. Many ESOP companies target consistent benefit levels—say 15%—to support employee communication, valuation stability, and long-term planning.
Distributions vary year to year, so managing to a benefit level helps smooth outcomes and provides predictability.
Releveraging and Long-Term Sustainability
Jason Miller:
Let’s talk about releveraging.
Pete Shuler:
Releveraging typically occurs in mature ESOPs facing growing repurchase obligations. By placing shares back into suspense and allocating them over time, releveraging slows repurchase obligation growth and supports sustainability.
It should be done thoughtfully, with experienced advisors and trustees, and is rarely driven by immediate cash shortages—it’s about long-term planning.
Final Thoughts on ESOP Planning
Jason Miller:
For listeners considering an ESOP, this can sound overwhelming.
Pete Shuler:
It doesn’t all happen at once. There’s breathing room in the ESOP lifecycle, and plan design is flexible. Nothing you do early on is unforgivable or unfixable later.
The key is having experienced advisors and not cutting corners. That investment pays off many times over in long-term ESOP success.
Final Takeaways
- Flexibility in plan design is critical for long-term ESOP success
- Repurchase obligation is manageable with proactive planning
- Recycling, redemption, and releveraging each serve different strategic goals
- Consistent employee communication strengthens ESOP value
- Experienced advisors are essential for sustainable ESOP administration
Resources & Next Steps
- Learn more about ESOP administration and consulting at Blue Ridge Associates
- Explore additional Journey to an ESOP and Beyond episodes
Listen to the Episode
🎧 Journey to an ESOP and Beyond
https://journeytoanesop.buzzsprout.com/885631/episodes/18568746-ep4-interview-with-pete-shuler-of-blue-ridge-associates
