How do EIAPs and ESOPs differ?

Yesterday there was some confusion about the relationship and comparisons between an Eligible Individual Account Plan (EIAP), an Employee Stock Ownership Program (ESOP) and an ERSOP. Here are my comments:

EIAP – My understanding that this is no more than a retirement plan that allows the employer to offer profits to be shared as cash to individual employees either in lump sums or as a percentage of contributions. The 401(k) plan that we use for Audeo meets the definition of an EIAP as is required by the IRC 4975 (d)(13) (and associated ERISA sections) exemption to prohibited transactions that Audeo operates in. The EIAP we use explicitly allows for the purchase of Qualifying Employer Securities (QES) but does not provide for any exception to the rules that require that any party being offered that stock meet the definition of an Accredited Investor. This is why we must make all 401(k) participants eligible for investment at the time of the QES offering a director of the Corp.

ESOP – An ESOP may be an EIAP, but our 401(k) plan is absolutely not an ESOP or even like one. An ESOP is a special plan that allows an employer to set up a trust for the benefits of all employees, regardless of their status as an accredited investor, that the employer can put either QES stock or cash for the exclusive purpose of the purchase of QES within a preset period of time. There are other special rules that apply to an ESOP that do not apply to the Audeo such as special tax breaks that allow or even encourage the employer to use debt to grow the account for the benefit of the employees. Any attempt to compare an EIAP to an ESOP will be inaccurate, giving your client/candidate the false sense that Audeo requires that they give QES to their employees and likely prompt questions that none of us are trained to handle. So the comparison to an ESOP is that Audeo is not like an ESOP.

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