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HARTFORDBUSINESS.COM | October 24, 2022 17 It's Not Your Parent's Succession Planning: Why ESOPs Are Exploding Across America By Matthew Hummel, Market President and Commercial Banking Market Executive, KeyBank and Douglas Dell, Senior Vice President and Director, Middle Market Specialty Finance, KeyBank SPONSORED CONTENT I t's not an exaggeration that Employee Stock Ownership Plans (ESOPs) are becoming increasingly more popular with business owners in the last few years. KeyBank's commercial banking team has experienced a strong uptick in ESOP business and has worked with numerous clients here in Connecticut and throughout the bank's footprint to successfully transition their businesses to employee ownership. There are several reasons for the growing popularity of ESOPs in business succession planning. For one, more than half of privately held firms in the U.S., or 2.9 million businesses are owned by baby boomers 1 reaching retirement age and at the stage where they need to transition ownership in order to retire. In previous generations, family- owned businesses typically were passed down to younger generations within the family. However, that expectation may not be realistic today; often, there aren't clear successors or interest from natural successors to take on ownership. At the same time, selling their businesses outright may not be feasible either. Even if a small or middle-market business is profitable with stable and moderate growth projections, it may not have the steep growth trajectory sought by private equity (PE) or strategic buyers in acquisition mode. It may be in a niche industry or in a rural location, which also limits prospective interest. Finally, for owners with close ties to their communities, selling may risk their business being relocated or closed, which could jeopardize their legacy, their employees' livelihood, and impact the greater population. Small and middle-market businesses help communities thrive, providing necessary services and goods, as well as employment for local residents and essential tax revenue to their towns. Private ownership comes with significant responsibilities and challenges, and one of the most important is succession planning. For these reasons and others, many business owners who are ready to exit their businesses are considering ESOPs. ESOPs give closely held companies a sustainable and tax- advantaged 2 path to succession, while also giving employees an opportunity to participate in the company's profitability and success. Benefits for Owners Owners who sell in an ESOP transaction can benefit from: • Selling minority positions, allowing them to diversify holdings while maintaining company control. • Rewarding the employees who made them successful with a beneficial ownership and a retirement plan. • Maintaining their community legacy by keeping their business open and in the same location. • Sellers of C-Corp stock to an ESOP can elect to defer, and ultimately avoid, capital gains taxes if they reinvest in Qualified Replacement Property. • Participating in upside growth after sale through warrants attached to seller debt, or by selling in stages. Benefits for Employees Employees can also win in an ESOP transaction because: • They are not taxed on annual contributions or appreciation until they take a distribution, when they can roll over to an Individual Retirement Account (IRA) to defer taxes. • Vested stock held by the trust for the employee is repurchased by the company (or by the ESOP) at retirement, death, disability, or termination of employment. • At age 55 and 10 years of employment, participants are allowed to diversify a portion of their company stock holdings into traditional marketable investments such as mutual funds. Benefits for Companies At the company level, the benefits of an ESOP transaction are numerous: • They can generally repay ESOP acquisition debt principal with pretax dollars, subject to limitations, increasing the ability to service debt. • If an S-Corp is 100% owned by an ESOP, no distributions are required to pay the owners' tax bill — ESOP trusts do not pay taxes. • Acquisitions by an ESOP-owned company can be structured to allow target company sellers to defer capital gains, potentially lowering the acquisition price. • ESOPS aid in employee retention and recruitment, which is especially important in a tight and very mobile labor market like the one we're experiencing today. • Ownership motivates high performance from employees and aligns their interests with other stakeholders because they now share in the success or growth of the company. The steps to establish an ESOP can be complicated. Business owners who are contemplating an ESOP should work with skilled ESOP practitioners to advise on the financial, tax, and legal implications. At KeyBank, our local commercial team partners with experts from across the bank, including a nationwide team that specializes in ESOP capital structures, to make the transition seamless and supportive to both the sellers' and buyers' interests. Throughout the process, KeyBank recognizes the goals of every participant – for an end result that is a success for all. For more information on how KeyBank can help your business, visit www.key.com/ businesses-institutions. About the authors: Matthew E. Hummel is President and Commercial Banking Market Executive for KeyBank's Connecticut and Massachusetts market. He can be reached at 860-293-4138 and Matthew_E_ Hummel@keybank.com. Douglas Dell is Director, Middle Market Specialty Finance. He can be reached at Douglas_ Dell@keybank.com and 720-904-4505. What is an ESOP? An ESOP is a tax- qualified retirement plan regulated under the Employee Retirement Income Security Act of 1974 (ERISA) that provides a company's workforce with ownership interest in the company. Owners sell company stock to a trust account for benefit of the employees over time. The sale is financed through tax advantaged bank loans and seller debt. 1 "The Small Business Closure Crisis: Baby boomers own over half of all privately held firms in the United States" Project Equity Organiza on, March 2021, project-equity.org. 2 KeyBank does not provide tax or legal advice. Consult your tax advisor regarding your specific situa on. About the author: As Vice President and Key@Work Account Manager with KeyBank, Katherine (Katie) Farrington works directly with companies' human resources personnel to design and deliver customized financial wellness programs for their employees as part of their employee well-being benefits offerings. Key@Work is available free of charge to employers and employees. For more information, Katie can be reached at : Office: 860-395-0384 Cell: 860-395-7820 katherine_farrington@keybank.com S P O N S O R E D C O N T E N T Employers: Financial Wellness Is A "Must Have" Benefit In 2022 By Katherine Farrington, Vice President and Key@Work Account Manager, KeyBank T he "Great Resignation of 2021" has left upwards of 11 million jobs open. 1 The pandemic has caused many workers to reassess their work/ life priorities and employers are finding that competitive wages are no longer enough to attract and keep talent. Human Resource teams looking to differentiate their companies in a competitive hiring market are embracing workplace flexibility and robust benefit packages to stand out to prospective candidates. One of the biggest trends for 2022: Financial Wellness benefits. Employees want financial education A 2022 VantagePoint study published by Forbes 2 found that six in ten employees say well- being benefits (financial, mental, social, physical and career) are top priorities for them, with financial and mental well-being rated the highest. Nearly a third rated financial wellness as the area they are struggling with the most, with Gen X respondents -- the so-called "Sandwich Generation" citing the struggle of juggling financial commitments for both their children and aging parents as a major stressor. A survey conducted by KeyBank affiliated Laurel Road, 3 a digital banking platform with specialized offerings for healthcare and business professionals, highlighted that younger Millennial and Gen Z workers expressed even greater concerns about their financial well-being. The survey found that 62% of young Americans feel constantly stressed about their finances. Furthermore, 79% of respondents felt they would be less stressed about their financial situation if they were further educated on how to achieve financial wellness. Most importantly, respondents identified ways to deal with their stressors, noting that having a student loan repayment plan (34%), roadmaps outlining debt repayment (41%), a better understanding of investment options (48%), and the ability to save more money (52%) would help them have their finances under control -- all items that employers can provide through a good financial wellness employee benefits program. Key@Work offers comprehensive financial wellness resources for your employees At KeyBank, we offer a complimentary service to our business clients called Key@Work. This comprehensive financial wellness program provides a unique solution to our clients and their HR/Benefits teams. While many financial institutions may partner with employers to provide banking discounts, Key@Work goes further by offering a program that takes your employee's full financial picture into consideration. Our mission is to provide financial education, tools and resources that address the full spectrum of needs across an employer's workforce demographics. KeyBank's unique approach has yielded notable results and accolades from our clients. Components of KeyBank's Key@Work program include: • Flexible educational sessions for employees to learn about financial wellness and how to take control of their finances. We offer virtual, in person and hybrid options to ensure all employees can attend. • Personalized advice that is tailored to employees' individual income levels, life stage, and financial goals. • Tools and resources that enable employees to track their spending, set budgets, create goals, and document their progress. • A full range of banking and financial products 4 that support employees' financial needs. The COVID-19 pandemic has brought financial health and wellness to the forefront and is changing the way employees are looking at their careers and workplace priorities. In today's competitive hiring market, the most successful employers are listening to those priorities and acting upon them – and one of the biggest priorities for job seekers today is financial education. Being able to offer a comprehensive set of personalized financial tools and resources shows your current and prospective workers that you are invested in their financial health and future. Let KeyBank help you enhance your well-being benefits program with employee financial resources that can attract and retain talent, improve employee engagement, and drive performance that leads to better productivity for your business. Focusing on your employees' financial health can help you attract and retain talent Banking products and services are offered by KeyBank National Association. All credit, loan and leasing products subject to credit approval. ©2022 KeyCorp. KeyBank is Member FDIC. 220315-1508958 We have fresh ideas to move your business forward. R R R 1. Job openings near record high, with 11 million vacancies - CBS News 2. https://www.forbes.com/sites/jeannemeister/2021/12/16/the-future-of-work-offering-employee-well-being-benefits-can-stem-the-great-resignation/ 3. Laurel Road Brings on Financial Therapist to Strengthen 'Mental Wealth' Initiatives | Laurel Road 4. Subject to credit approval About the author: As Vice President and Key@Work Account Manager with KeyBank, Katherine (Katie) Farrington works directly with companies' human resources personnel to design and deliver customized financial wellness programs for their employees as part of their employee well-being benefits offerings. Key@Work is available free of charge to employers and employees. For more information, Katie can be reached at : Office: 860-395-0384 Cell: 860-395-7820 katherine_farrington@keybank.com S P O N S O R E D C O N T E N T Employers: Financial Wellness Is A "Must Have" Benefit In 2022 By Katherine Farrington, Vice President and Key@Work Account Manager, KeyBank T he "Great Resignation of 2021" has left upwards of 11 million jobs open. 1 The pandemic has caused many workers to reassess their work/ life priorities and employers are finding that competitive wages are no longer enough to attract and keep talent. Human Resource teams looking to differentiate their companies in a competitive hiring market are embracing workplace flexibility and robust benefit packages to stand out to prospective candidates. One of the biggest trends for 2022: Financial Wellness benefits. Employees want financial education A 2022 VantagePoint study published by Forbes 2 found that six in ten employees say well- being benefits (financial, mental, social, physical and career) are top priorities for them, with financial and mental well-being rated the highest. Nearly a third rated financial wellness as the area they are struggling with the most, with Gen X respondents -- the so-called "Sandwich Generation" citing the struggle of juggling financial commitments for both their children and aging parents as a major stressor. A survey conducted by KeyBank affiliated Laurel Road, 3 a digital banking platform with specialized offerings for healthcare and business professionals, highlighted that younger Millennial and Gen Z workers expressed even greater concerns about their financial well-being. The survey found that 62% of young Americans feel constantly stressed about their finances. Furthermore, 79% of respondents felt they would be less stressed about their financial situation if they were further educated on how to achieve financial wellness. Most importantly, respondents identified ways to deal with their stressors, noting that having a student loan repayment plan (34%), roadmaps outlining debt repayment (41%), a better understanding of investment options (48%), and the ability to save more money (52%) would help them have their finances under control -- all items that employers can provide through a good financial wellness employee benefits program. Key@Work offers comprehensive financial wellness resources for your employees At KeyBank, we offer a complimentary service to our business clients called Key@Work. This comprehensive financial wellness program provides a unique solution to our clients and their HR/Benefits teams. While many financial institutions may partner with employers to provide banking discounts, Key@Work goes further by offering a program that takes your employee's full financial picture into consideration. Our mission is to provide financial education, tools and resources that address the full spectrum of needs across an employer's workforce demographics. KeyBank's unique approach has yielded notable results and accolades from our clients. Components of KeyBank's Key@Work program include: • Flexible educational sessions for employees to learn about financial wellness and how to take control of their finances. We offer virtual, in person and hybrid options to ensure all employees can attend. • Personalized advice that is tailored to employees' individual income levels, life stage, and financial goals. • Tools and resources that enable employees to track their spending, set budgets, create goals, and document their progress. • A full range of banking and financial products 4 that support employees' financial needs. The COVID-19 pandemic has brought financial health and wellness to the forefront and is changing the way employees are looking at their careers and workplace priorities. In today's competitive hiring market, the most successful employers are listening to those priorities and acting upon them – and one of the biggest priorities for job seekers today is financial education. Being able to offer a comprehensive set of personalized financial tools and resources shows your current and prospective workers that you are invested in their financial health and future. Let KeyBank help you enhance your well-being benefits program with employee financial resources that can attract and retain talent, improve employee engagement, and drive performance that leads to better productivity for your business. Focusing on your employees' financial health can help you attract and retain talent Banking products and services are offered by KeyBank National Association. All credit, loan and leasing products subject to credit approval. ©2022 KeyCorp. KeyBank is Member FDIC. 220315-1508958 We have fresh ideas to move your business forward. R R R 1. Job openings near record high, with 11 million vacancies - CBS News 2. https://www.forbes.com/sites/jeannemeister/2021/12/16/the-future-of-work-offering-employee-well-being-benefits-can-stem-the-great-resignation/ 3. Laurel Road Brings on Financial Therapist to Strengthen 'Mental Wealth' Initiatives | Laurel Road 4. Subject to credit approval About the author: As Vice President and Key@Work Account Manager with KeyBank, Katherine (Katie) Farrington works directly with companies' human resources personnel to design and deliver customized financial wellness programs for their employees as part of their employee well-being benefits offerings. Key@Work is available free of charge to employers and employees. For more information, Katie can be reached at : Office: 860-395-0384 Cell: 860-395-7820 katherine_farrington@keybank.com S P O N S O R E D C O N T E N T Employers: Financial Wellness Is "Must Have" Benefit In 2022 Key@Work KeyBank Resignation of upwards open. 1 many work/ employers competitive enough to Human to companies in market are flexibility packages prospective biggest financial study found that well- mental, career) with well-being third the with the respondents "Sandwich struggle of commitments aging stressor. Road, 3 for healthcare and business professionals, highlighted that younger Millennial and Gen Z workers expressed even greater concerns about their financial well-being. The survey found that 62% of young Americans feel constantly stressed about their finances. Furthermore, 79% of respondents felt they would be less stressed about their financial situation if they were further educated on how to achieve financial wellness. Most importantly, respondents identified ways to deal with their stressors, noting that having a student loan repayment plan (34%), roadmaps outlining debt repayment (41%), a better understanding of investment options (48%), and the ability to save more money (52%) would help them have their finances under control -- all items that employers can provide through a good financial wellness employee benefits program. Key@Work offers comprehensive financial wellness resources for your employees At KeyBank, we offer a complimentary service to our business clients called Key@Work. This comprehensive financial wellness program provides a unique solution to our clients and their HR/Benefits teams. While many financial institutions may partner with employers to provide banking discounts, Key@Work goes further by offering a program that takes your employee's full financial picture into consideration. Our mission is to provide financial education, tools and resources that address the full spectrum of needs across an employer's workforce demographics. KeyBank's unique approach has yielded notable results and accolades from our clients. Components of KeyBank's Key@Work program include: • Flexible educational sessions for employees to learn about financial wellness and how to take control of their finances. We offer virtual, in person and hybrid options to ensure all employees can attend. • Personalized advice that is tailored to employees' individual income levels, life stage, and financial goals. • Tools and resources that enable employees to track their spending, set budgets, create goals, and document their progress. • A full range of banking and financial products 4 that support employees' financial needs. The COVID-19 pandemic has brought financial health and wellness to the forefront and is changing the way employees are looking at their careers and workplace priorities. In today's competitive hiring market, the most successful employers are listening to those priorities and acting upon them – and one of the biggest priorities for job seekers today is financial education. Being able to offer a comprehensive set of personalized financial tools and resources shows your current and prospective workers that you are invested in their financial health and future. Let KeyBank help you enhance your well-being benefits program with employee financial resources that can attract and retain talent, improve employee engagement, and drive performance that leads to better productivity for your business. your employees' financial help you attract and retain talent Banking products and services are offered by KeyBank National Association. All credit, loan and leasing products subject to credit approval. ©2022 KeyCorp. KeyBank is Member FDIC. 220315-1508958 have fresh ideas to your business forward. R R R vacancies - CBS News https://www.forbes.com/sites/jeannemeister/2021/12/16/the-future-of-work-offering-employee-well-being-benefits-can-stem-the-great-resignation/ Strengthen 'Mental Wealth' Initiatives | Laurel Road About the author: As Vice President and Key@Work Account Manager with KeyBank, Katherine (Katie) Farrington works directly with companies' human resources personnel to design and deliver customized financial wellness programs for their employees as part of their employee well-being benefits offerings. Key@Work is available free of charge to employers and employees. For more information, Katie can be reached at : Office: 860-395-0384 Cell: 860-395-7820 katherine_farrington@keybank.com S P O N S O R E D C O N T E N T Employers: Financial Wellness Is A "Must Have" Benefit In 2022 By Katherine Farrington, Vice President and Key@Work Account Manager, KeyBank T he "Great Resignation of 2021" has left upwards of 11 million jobs open. 1 The pandemic has caused many workers to reassess their work/ life priorities and employers are finding that competitive wages are no longer enough to attract and keep talent. Human Resource teams looking to differentiate their companies in a competitive hiring market are embracing workplace flexibility and robust benefit packages to stand out to prospective candidates. One of the biggest trends for 2022: Financial Wellness benefits. Employees want financial education A 2022 VantagePoint study published by Forbes 2 found that six in ten employees say well- being benefits (financial, mental, social, physical and career) are top priorities for them, with financial and mental well-being rated the highest. Nearly a third rated financial wellness as the area they are struggling with the most, with Gen X respondents -- the so-called "Sandwich Generation" citing the struggle of juggling financial commitments for both their children and aging parents as a major stressor. A survey conducted by KeyBank affiliated Laurel Road, 3 a digital banking platform with specialized offerings for healthcare and business professionals, highlighted that younger Millennial and Gen Z workers expressed even greater concerns about their financial well-being. The survey found that 62% of young Americans feel constantly stressed about their finances. Furthermore, 79% of respondents felt they would be less stressed about their financial situation if they were further educated on how to achieve financial wellness. Most importantly, respondents identified ways to deal with their stressors, noting that having a student loan repayment plan (34%), roadmaps outlining debt repayment (41%), a better understanding of investment options (48%), and the ability to save more money (52%) would help them have their finances under control -- all items that employers can provide through a good financial wellness employee benefits program. Key@Work offers comprehensive financial wellness resources for your employees At KeyBank, we offer a complimentary service to our business clients called Key@Work. This comprehensive financial wellness program provides a unique solution to our clients and their HR/Benefits teams. While many financial institutions may partner with employers to provide banking discounts, Key@Work goes further by offering a program that takes your employee's full financial picture into consideration. Our mission is to provide financial education, tools and resources that address the full spectrum of needs across an employer's workforce demographics. KeyBank's unique approach has yielded notable results and accolades from our clients. Components of KeyBank's Key@Work program include: • Flexible educational sessions for employees to learn about financial wellness and how to take control of their finances. We offer virtual, in person and hybrid options to ensure all employees can attend. • Personalized advice that is tailored to employees' individual income levels, life stage, and financial goals. • Tools and resources that enable employees to track their spending, set budgets, create goals, and document their progress. • A full range of banking and financial products 4 that support employees' financial needs. The COVID-19 pandemic has brought financial health and wellness to the forefront and is changing the way employees are looking at their careers and workplace priorities. In today's competitive hiring market, the most successful employers are listening to those priorities and acting upon them – and one of the biggest priorities for job seekers today is financial education. Being able to offer a comprehensive set of personalized financial tools and resources shows your current and prospective workers that you are invested in their financial health and future. Let KeyBank help you enhance your well-being benefits program with employee financial resources that can attract and retain talent, improve employee engagement, and drive performance that leads to better productivity for your business. Focusing on your employees' financial health can help you attract and retain talent Banking products and services are offered by KeyBank National Association. All credit, loan and leasing products subject to credit approval. ©2022 KeyCorp. KeyBank is Member FDIC. 220315-1508958 We have fresh ideas to move your business forward. R R R 1. Job openings near record high, with 11 million vacancies - CBS News 2. https://www.forbes.com/sites/jeannemeister/2021/12/16/the-future-of-work-offering-employee-well-being-benefits-can-stem-the-great-resignation/ 3. Laurel Road Brings on Financial Therapist to Strengthen 'Mental Wealth' Initiatives | Laurel Road 4. Subject to credit approval Employers: Financial A "Must Have" By Katherine Farrington, Vice President and Key@Work Account Manager, KeyBank T he "Great Resignation of 2021" has left upwards of 11 million jobs open. 1 The pandemic has caused many workers to reassess their work/ life priorities and employers are finding that competitive wages are no longer enough to attract and keep talent. Human Resource teams looking to differentiate their companies in a competitive hiring market are embracing workplace flexibility and robust benefit packages to stand out to prospective candidates. One of the biggest trends for 2022: Financial Wellness benefits. Employees want financial education A 2022 VantagePoint study published by Forbes 2 found that six in ten employees say well- being benefits (financial, mental, social, physical and career) are top priorities for them, with financial and mental well-being rated the highest. Nearly a third rated financial wellness as the area they are struggling with the most, with Gen X respondents -- the so-called "Sandwich Generation" citing the struggle of juggling financial commitments for both their children and aging parents as a major stressor. A survey conducted by KeyBank affiliated Laurel Road, 3 a digital banking platform with specialized offerings for healthcare and business professionals, highlighted that younger Millennial and Gen Z workers expressed even greater concerns about their financial well-being. The survey found that 62% of young Americans feel constantly stressed about their finances. Furthermore, 79% of respondents felt they would be less stressed about their financial situation if they were further educated on how to achieve financial wellness. Most importantly, respondents identified ways to deal with their stressors, noting that having student loan repayment plan (34%), roadmaps outlining debt repayment (41%), a better understanding of investment options (48%), and the ability save more money (52%) would help them have their finances under control -- all items that employers can provide through good financial wellness employee benefits program. Key@Work offers comprehensive financial wellness resources for your employees At KeyBank, we offer a complimentary service to our business clients called Key@Work. This comprehensive financial wellness program provides a unique solution to our clients and their HR/Benefits teams. While many financial institutions may partner with employers to provide banking discounts, Key@Work goes further by offering a program Focusing on your employees' financial health can help you attract and retain Banking products and services ©2022 KeyCorp. KeyBank We have fresh ideas move your business R R 1. Job openings near record high, with 11 million vacancies - CBS News 2. https://www.forbes.com/sites/jeannemeister/2021/12/16/the-future-of-work-offering-employee-well-being-benefits-can-stem-the-great-resignation/ 3. Laurel Road Brings on Financial Therapist to Strengthen 'Mental Wealth' Initiatives | Laurel Road 4. Subject to credit approval This document is designed to provide general information only and is not comprehensive nor is it legal, accounting, or tax advice. Consult your own tax advisor regarding applicability of tax related information to your unique tax circumstances. If legal, accounting, or tax advice or other expert assistance is required, the services of a competent professional should be sought. KeyBank does not make any warranties regarding the results obtained from the use of this information. All credit products are subject to collateral and/ or credit approval. Terms, conditions, and availability and subject to change. Key.com is a federally registered service mark of KeyCorp. ©2022 KeyCorp. KeyBank is Member FDIC.