Pamela Renquist, owner of Advance Software Solutions, Inc., wants to install a stock-based retirement plan for herself and her employees. She has a young company that has averaged 5% a year growth since opening 5 years ago. Pamela has asked you, her financial advisor, to help her understand which type of plan would be more advantageous for Advance Software Solutions, a stock bonus plan or an ESOP.
Pamela Renquist, owner of Advance Software Solutions,
Inc., wants to install a stock-based retirement plan for herself and her employees. She has a young company that has averaged 5% a year growth since opening 5 years ago. Pamela has asked you, her financial advisor, to help her understand which type of plan would be more advantageous for Advance Software Solutions, a stock bonus plan or an ESOP. You tell Pamela that:
A – both plans are identical except that an ESOP can be integrated with Social Security while a stock bonus plan cannot, making an ESOP less expensive to provide
B – only a stock bonus plan requires a “put” option, making it more difficult to retire employees when company cash is short
C – the ability to use the ESOP to borrow money with tax deductible dollars could be advantageous to a young and growing business
D – an ESOP will dilute company ownership, but the diversification requirements in a stock bonus plan prevent that from happening
E – only an ESOP can be used to fund a corporate buy-sell agreement and should be used if Pamela want to control business succession
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