Reviewing the Prior Timeline and Allocation Process

Reviewing the Prior Timeline and Allocation Process
January 9, 2007

In our ESOP Planning series we often made reference to the allocation process. While the allocation process varies from plan to plan, there are fundamental steps that occur for all ESOPs every plan year. We have compiled a sample allocation timeline that illustrates the main steps of the ESOP process. Last week we discussed conducting a pre-allocation planning meeting and processing benefit payment government filings. Over the next few weeks we will discuss the remaining steps of the allocation process. Today we will discuss reviewing the prior timeline and the allocation process.

It is very important to take a step back and review the administration process from the prior allocation. You should identify what parts of the process worked and what parts of the process need improvement. Here are some good questions to ask:

Did you have a detailed service timeline in place for the 2005 plan year? If the answer is no, then you should make sure to prepare one for 2006. To assist you with the creation of the 2006 timeline and to assist in the review of the 2005 allocation process, you should try to reconstruct the 2005 timeline, at least the key deliverables (e.g. census processed, trust processed, stock appraisal approved, allocation completed, audit completed, statements issued, meetings held, IRS Form 5500 completed and filed, distributions paid). Reviewing your files and prior emails should help with this process.
Were you satisfied with the timing and quality of the allocation process last year? You should recognize the internal and external parties for the great job that they did. For the areas that you were dissatisfied with, you should identify each problem that was encountered and the steps that have been taken to ensure that they are not going to happen again. You should break down the problem areas into sub-deliverables and manage those areas of the allocation process more closely. Performing a more-detailed analysis may also identify bottlenecks that can be addressed to improve the process. If you continue to experience the same timing and quality issues every year, it is important to work with the involved internal and external parties to ensure they have the training and resources that they need.
Are there any circumstances that will change the timeline in 2006? For example, was there an acquisition in the year that will delay the time it takes to gather the information? Or, does the company want to hold employee meetings earlier this year?

You will find your knowledge and experience with the allocation process in prior years to be invaluable in preparing for the current allocation process.