The Retirement Success in Maine Podcast Ep 126: ESOPs – Ownership, Opportunity, and Retirement

 

 

Transcript:

Intro (00:00:01):

Do you struggle with what it means to be successful in your retirement? Trust us. You're not alone. Welcome to the Retirement Success in Maine podcast. Here you'll go in depth with GuidancePoint advisors investment consultants to hear stories about how retirees in Maine are navigating a successful retirement. Get insight into the inevitable challenges of aging and define what a successful retirement looks like.

Ben Smith (00:00:26):

Welcome everybody to the Retirement Success in Maine podcast. My name is Ben Smith and joining me as always is the guy who reminds me that sometimes the best businesses are the ones owned by the people who show up every day. My co-host, Curtis Worcester. How are you doing today, Curtis?

Curtis Worcester (00:00:44):

I'm doing well. It's a good thing I showed up today, I guess.

Ben Smith (00:00:47):

Yeah. No

Curtis Worcester (00:00:48):

PTO today. Exactly. That's a good one, Ben. And especially on topic today, because we're going to be talking about something that's becoming more and more common, certainly here in the state of Maine and that's employee ownership of companies. So I think we were looking at the main biz not too long ago and it said there was over 95 ESOPs here in the state of Maine and roughly 6,400, a little north of that across the country.

Ben Smith (00:01:16):

And that's right. And today we're diving into a topic that's quietly reshaping businesses across our state, ESOPs or employee stock ownership plans. So now if you've worked for a company that's transitioned to ownership or you've heard about a local business selling to the employees, this is likely what they're talking about, but what does that really mean? How does it work? And more importantly, what does it mean for your financial future?

Curtis Worcester (00:01:42):

Yeah, it's exactly right, Ben. And this isn't just a conversation about business structure, right? It becomes a retirement conversation, which is what we do here all the time. And we're talking about people who suddenly maybe go from being employees to being owners. And that's a big change and that creates opportunity for people, but probably also generates a lot of questions for people as well.

Ben Smith (00:02:04):

Exactly. So today we're going to explore what ESOPs are, how companies transition into them, why they're becoming more popular, especially here in Maine, and what employees need to understand about turning those ownership shares into real retirement income.

Curtis Worcester (00:02:19):

Yeah. And like we do with all of our shows, Ben, we like to bring in an expert. And while ESOPs is something that I think you and I are aware of enough, we are certainly not experts. So we've brought somebody in who actually works directly with business owners in navigating these decisions. So our guest today is the chief operating officer of Bellevue Associates, a firm that helps companies design and implement employee ownership structures. And before joining Bellevue, our guests worked in private debt and equity at Prospect Capital, as well as in special situations investing in investment banking. So our guest brings a unique perspective, again, not just on ESOPs, but on how ESOPs compare to other exit strategies like private equity, which I know is something we've heard a lot about here locally as well. So with that kind of background, I really want to dive in.

(00:03:12):

So please join me in welcoming Thomas Flynn to the Retirement Success in Maine podcast. Thomas, thank you so much for coming on our show today.

Thomas Flynn (00:03:20):

Thank you guys for having me.

Ben Smith (00:03:21):

We are excited, Thomas, to have this conversation with you. I think every time we've gotten together with you in the past, I think I always learn a whole lot more every conversation. So I'm excited to share that knowledge that you have with our listeners today. And again, we always want to kind of go into a little bit of background, is just start with the foundation and love to just start at the beginning here. So for someone that's hearing the term ESOP for the first time, can you just walk us through what is it and how does it actually

Thomas Flynn (00:03:55):

Work? Sure. So when I have these sorts of conversations with new clients, I always tell them that if they understood 20% of what I said after the conversation, and that's a win. So I just want your listeners to caveat with that. You're not dumb if some of this doesn't make sense to you. But ESOP, so employee stock ownership plan, I always think it's helpful to understand why ESOPs first and then happy to provide the background. So hopefully the regulations actually make a little more sense. So in the '70s, not a great time, obviously in the US economy, oil prices were very high, unemployment, people were afraid of stagflation. Might remind some people of today a little bit, but

Intro / Outro (00:04:42):

Not as

Thomas Flynn (00:04:42):

Bad I think. They were looking at alternatives and obviously the US had the Soviet Union on the other side and people were arguing between two systems. And when Congress was doing research on, well, where is wealth built in the country? By far and away it was not from wages, it was from investing your money, but it was really from ownership in a business and a company. And that's where most wealth in the country was being generated. And so the idea behind the ESOP was how can we show and prove, put American capitalism on the center stage and give or grant ownership to employees across the country? If that is the number one way to build wealth, how can we do that sustainably? And so ERISA effectively included ESOP plans as an option for folks. And so employee stock ownership plans have been around since late 70s, early 80s.

(00:05:38):

And in a very simple way, an ESOP creates or establishes a trust, just an entity. When I say trust, just think about a third party entity that allows employees to be allocated ownership, stock, ownership in a company and has a lot of protections and still maintains it as a qualified benefit plan, a retirement plan. So it's not like I own shares in a private company, I'm a minority owner, et cetera. This is all done through a trust. It has specific protections for the participants, for the employees within it, because it is a qualified benefit plan. And the idea is that retirement, those employees, when they retire from the company, will be able to take out their ownership, take out what they had worked for essentially, get money at retirement associated with that ownership, i.e. Bridging the wealth gap and allowing more employees, regular folks to own and take advantage of that wealth creation.

(00:06:33):

And the government obviously knows that people are not, business owners don't just want to give their company to their employees. You might find some that say, "No, I just literally want to do this. " So what the government established was tax incentives for folks who sell their businesses to ESOP. They make it in a lot of cases, there are multiple types of ESOPs. We can get into that. But if you do an S corp ESOP or a company that has an S selection essentially does an ESOP and does a hundred percent sale to an ESOP, it will be 100% exempt from federal and state income tax capital gains tax with the one exception of, and you might have some listeners in New Hampshire, I always feel bad for the New Hampshire folks, New Hampshire does not recognize the S corporation, so you do have to still pay some tax in New Hampshire.

Curtis Worcester (00:07:17):

Gotcha. It's a statement that's not usually said about the state of New Hampshire, I think.

Thomas Flynn (00:07:22):

It's unique thing. Yeah, normally. Yeah, exactly.

Curtis Worcester (00:07:27):

No, I appreciate that, Thomas. So I guess staying on this kind of foundational, I appreciate that background and kind of definition there, if you will, but I guess to make it real, so let's say somebody listening is an employee at a company and that company becomes an ESOP, what does that actually mean? I know we're saying ownership is a big part of this, but kind of day-to-day operation, what does that mean for the employee? What

Thomas Flynn (00:07:53):

Changes? It is a great question, Curtis. And in terms of changes and Bellevue's done a fair amount of transactions and one of my favorite parts of the process is a rollout. So I go, I meet with a bunch of employees. I've spent six to 12 months in a room with the owners talking about the ESOP and now I finally get to meet the people whose names I've seen on a spreadsheet. And I always start it off, I'll do the rollout one, two months after closing and I say, "Congratulations. Two months ago you guys sold to an ESOP. Does anyone notice any difference?" And maybe the owner's a litle less stressed out, but otherwise the employees say, "No, we don't notice the difference." And that is part of the benefit I think associated with the ESOP. You sell to private equity. If you sell to a third party, there are going to be changes associated with that transaction.

(00:08:43):

Most likely there will be changes. In an ESOP, everything really stays intact and I'll talk about the changes, but everything from an employe perspective basically stays intact. Management remains in place. People keep their jobs. You don't have ESOP transactions where a bunch of people get laid off at closing. That never happens in an ESOP. The only primary difference is that at the end of every year, assuming you're eligible, you're going to get an allocation of stock and that allocation is going to have certain formulas on how it's determined how you get stock versus your coworkers. If you are eligible, you are now going to get stock and you'll get a statement at the end of every year. It's a little bit after the end of the year because they have to finish the valuation to determine how much your stock is worth. You'll get a statement that says, "Hey, you have 0.1%, 0.5%, 2% of company X that you work for.

(00:09:33):

" And I think one of the ... I think you're thinking about it from a perspective of, "Hey, I'm an employee. How has my life changed?" Outside of that statement, your life does not operationally need to change. You show up, you go to work. And the government was very clear when they were developing the rules around ESOPs to say, "Hey, what led to the prior success we do not want to change." So an ESOP is not a co-op. It's not one person, one vote, they still want management in place. They also realize, hey, we're now protecting people's retirement assets. The ownership of this company is now someone's retirement asset. Company will now have a board, has to have an intact board. I know a lot of corporations are supposed to have boards. ESOP, you have to have a real board. You meet annually, quarterly, however often you do, you have to look out for the participants.

(00:10:19):

And then that trust that I mentioned earlier, that new entity created where everyone's shares are held, that's going to have a trustee. It's going to have someone whose job it is, a third party to look on behalf of the participants and make sure that you, that employee, you just have to show up, do your job every day. You do what led to the success of the company. There are going to be third parties in place looking out for you, protecting your retirement assets effectively.

Ben Smith (00:10:44):

Well, that's awesome background, Thomas, and I want to bring it to Maine as well because it feels like we're seeing more and more of these transactions happening across the state of Maine. So I want to ask a time sensitive question. Why is this model gaining traction right now? Because you said, geez, hey, this goes all the way back to the '70s. So why is it feels like 2026 right now or in the middle of 2020s, why is this becoming more and more of a momentum of transactions that is going on right now?

Thomas Flynn (00:11:19):

Yeah, it's not because I'm a great salesman. I can rule that one out. I think it is part of it. Yeah. But I think genuinely what's happened, and this gets a little philosophical and there are multiple reasons and I'll cut through some of them, but I think one of the big ones is that when private equity was first coming on the stage, and that can probably be the '80s, the '70s, but the KKRs of the world in the '80s raising their buyout funds, I think that they were taking advantage of a generation of business owners who needed to find two things to sell their business. One, they had to find capital, someone had to be able to afford it, then two, they had to find competence. And so capital, competence, and I think private equity really ran roughshot for an entire couple generations in terms of acquiring companies.

(00:12:12):

And I have a ton of friends who work in private equity. I used to work in the industry, I'm not going to say anything bad about that model, but they were taking advantage of the fact that the Venn diagram meeting point between capital and between competence was relatively small and they had capital and they had operators, they had competence, so they could fulfill that. And I think what's happened is that for a lot of business owners who have friends saw other folks do that sale to a third party or private equity firm, a strategic or private equity firm, they came away from those sales maybe not being as happy as you would think they would've been. It didn't turn out as well. A third half of private equity deals in certain industries are considered kind of a failure or not to have been a great outcome.

(00:12:57):

And so I think that's led a lot of folks to turn to alternatives and say, "Hey, what are my other options? If I don't want to sell to the guy across the street, I don't know if that's going to be great for my legacy or my employees. I don't want to sell to this private equity firm. I don't think that's going to be great for my legacy, my employees. Is there another option?" And I think that the ESOP with the tax advantages associated with the transaction have been an attractive third way between selling to a strategic or selling to a private equity firm. And a lot of my clients, when I start speaking to them, they'll say, "I don't have a son. I don't have a daughter. I don't have someone who just naturally will take this over, but I really like my employees. They've built this thing with me.

(00:13:39):

I want to give back to them." And one client recently told me I had an offer from private equity and I hear this a lot, but I remember this because I was talking to them a couple weeks ago, I had an offer for private equity, but I knew if I signed that offer, I don't think I could look my people in the eyes again. I don't know what would've happened. And I would've basically said, "You guys are on your own. I took some cash." The ESOP really offers this third way where the people that helped you really create your business, you're going to get bought out as an owner. The people who helped you create that business, you're going to allow them to continue build your legacy but also build their legacy. That business is important to them. It's jobs, it's how they feed their families.

(00:14:20):

It's also now going to be part of their retirement when they get the ownership. So I think that's been very large. You've had around two plus decades of the private equity business model and I think you have enough unhappy customers with that business model. They've told their friends, I've seen this in medicine, for instance, where they're now looking for alternatives. I also just think there's a kind of a greater consciousness among business owners. And again, I used to work in private equity, so I'm mostly a numbers guy, but in working in ESOPs for the last several years, I've really enjoyed talking to business owners and hearing I want to help my employees.That's more important than the dollars and cents of selling my company. And I don't know what that is if to your point, it was a 2010s thing, 2020s thing, but there's a greater consciousness of it's not just about dollars and cents.

(00:15:13):

I really want my employees to win out here. They've done a lot for me. I want to give back to them. Those have been two huge tailwinds for the ESOP industry. And then the final thing I'll mention, and this is more on the regulatory side, the first Trump Tax Act in 2018, and this is the transaction that I do. I do the S-Corp ESOP. The first Trump Tax Act in 2018 enabled folks to make Roth elections on 401 contributions. And I think because we will put our ESOP into a 401 plan, so a lot of our ESOPs, we'll call them KSOPs, ESOP within a 401k. I don't want to get too in the weeds, but that meant that folks on ESOP contributions on their shares could now make a Roth election. And for folks that might not be, it's a retirement podcast, I assume, folks that may not be familiar though with the Roth election, that means you pay tax on the way in.

(00:16:08):

And then when you take that out at retirement, five years, 59 and a half is when you can distribute it to yourself. When you ultimately take that out of retirement, you don't have to pay tax on the way out. And I think generally if you're a younger person, a Roth election can be really attractive and I'm not giving anyone financial advice. But in an ESOP transaction, especially because you've acquired the company from the owner and they're significant in a leveraged ESOP, there's significant debt at the beginning, you kind of get to use the private equity business model of a leveraged buyout, but in very little equity, finance it mostly with debt and you get a lot of upside by doing a Roth election. And then if that company continues to grow, we have clients in Maine who've deals that we've done from 20 years ago, the companies have three, four, 5X their size, you're going to get to not pay tax on the way out.

(00:16:59):

That's a substantial benefit. Yeah, exactly. And just for folks listening, it is not allowed in the US tax code for a retirement account to own S Corp stock, can't do it. You have to own stock in a C Corp. Corps get taxed at the corporate level. The one way to do it, the one way to have ownership in a qualified benefit plan is the ESOP trend. It's the ESOP trust. That's the one way that you can own stock in a qualified benefit plan in an S corporation. So that has also made it very, very attractive.

Curtis Worcester (00:17:33):

Yeah, absolutely. And I think just real quick to touch on something there in your answer that stuck out, I think probably to all three of us is why you said it and just the owners caring about their employees. I think that's a big trend. And being here in Maine, I think we all know that say what you want about Mainers, but I think we care about our friends and neighbors too. So it's cool to hear that from your perspective, Thomas, and see part of that as why the traction is growing so rapidly on the ESOP movement. So I guess specifically, I think at least in our area, we've seen ESOP show up a lot in industries like manufacturing and construction. Just a question for you again and not getting super nitty-gritty, but why is it those industries tend to adopt this structure more often? Is there a reason to it or is it just coincidental that I think we see it in those areas?

Thomas Flynn (00:18:27):

I will give you, I think a very candid answer. Most ESOPs are construction companies. And I think in a lot of cases, when you think about a construction company, I mean, depending on their various types, more specialized, less special, et cetera, your assets in that business, your primary assets in that business are not yellow iron. A lot of people can go out. They're your people. They come in at 90 AM, they leave 50 PM. Unfortunately, some of my clients start at 40 AM at 50PM, but they're your people. And especially as the job and labor market gets more and more competitive in that industry, you have to find ways to try to retain your key people. If your key asset leaves or goes to someone else, that's going to diminish your company's value 100%. And so a lot of my clients in the construction industry, they say, "Thomas, this is great.

(00:19:19):

You're showing me all this really complicated modeling. I just want to keep my guys. Number one, I want to stop them if it's a specialized trade, a tradesman, skilled trades. I want to stop them from just going out and starting their own thing. I want them to realize they can get the upside sticking around staying in my business." And then number two, it's, hey, that guy down the street just did an ESOP. Hopefully he was one of my clients. That guy down the street just did an ESOP and he's now attracting my people. I want to do an ESOP to also be competitive and stick with him. So construction, engineering, architecture, those firms where people are your assets, I think the ESOP benefit is just really, really attractive for them. The other reason, and this just goes to, I think pragmatism, construction is not generally getting an eight to 10 times multiple from private equity, from a strategic or from private equity.

(00:20:08):

It is not going to be a very high multiple business. It's cyclical, it's competitive. There's a lot of reasons for that. And so when you think about it from a comparison perspective, construction generally can make a lot of cash flows. In Maine, it's in a high tax jurisdiction and the alternative sal is not that attractive because private equity firms are not offering huge multiples. So the ESOP can save money on taxes, help retain your employees and be extremely competitive for a seller, for a former owner, now a seller compared to their alternative. The ESOP's going to win that time 10 times out of 10, nine times out of 10. It's going to win that battle because they're probably going to get similar or more money under the ESOP with the tax incentive and they get to help their employees. They're going to take that versus selling their company.

Ben Smith (00:20:57):

So Thomson, I think you're bringing up a really great point. We've kind of touching on private equity as a kind of theme here is there's a litle bit of pros and cons of all these different ways that you can do this. And I think from a, as I said, I know what you said is like, "Hey, I'm not going to speak badly about private equity." And we want to honor that as well, but I think from there is a stigma I think when we are walking down downtown Rockland, Maine and you kind of hear people talk about what's going on and they say, "Geez, private equity came in and they bought this company and then they laid off half the employees and they outsourced it to other places." And so you can tell there's a little bit of an allergy that happens even when they hear private equity, which again, I think there's positives here from the ownership side of like, "Hey, I need liquidity and I built something and I want that value for what I built." But it sounds like ESOP obviously is another option to be considering for many of these sales and making sure that it might work.

(00:22:05):

But I guess what I'm kind of getting to as a question is I think that it sounds like this is where it becomes really relevant for Mainers is that ESOPs really can keep jobs local, maintain culture, preserve community ties. Would you characterize that as a fair way to think about what I just said?

Thomas Flynn (00:22:22):

Yeah. And I mean, just full disclosure, not just Maine deals everywhere. They want to keep their company local and they all have, and again, it went to my reasoning between why I think we're seeing so many more ESOPs. Everyone I talk to, every business owner has a friend who sold to private equity, almost everyone has a friend or knows someone who sold the private equity and it did not turn out extremely well for their people. It might've been a good deal for the private equity firm. I think that's really a distinction here. And to bring it to Maine, if you do sell to a private equity firm and it's nothing, and again, caveat, I'm not speaking ill of it, it's just the structure. Their funds generally have four to eight years to monetize and harvest. So when they buy a company and they're putting a lot of debt on that company, generally, that's the leverage buyout, they immediately have to try to and they can create more value, get more than what they paid for it in 48 years.

(00:23:21):

And they really only have 48 years. The funds have fixed lives, they already have to think about how do I monetize this? There's really two primary ways to do it. One, you have to increase the multiple you're going to get. So I paid someone five times today. I have to try to sell this company for eight times later and that can fluctuate with the market, interest rates, et cetera. But how they generally do it is with a diversified base. So your company is in Rockland, Maine. Well, look, I have your company. I have one in Portsmouth, New Hampshire. I'm going to roll up one in Massachusetts, bang. I now have a New England presence. I have many more customers. It's more diversified. I get a higher multiple on that. They increase margins. So hey, when I paid five times my profit margins were 15%, I've now cut cost, I've scaled the business, I now have 25, 30% problem margins.

(00:24:06):

So lower risk, increased profitability. And the way that they're increasing margins, or you have some private equity firms before I jump into that, that are essentially saying, "Okay, I'm in a five to six times multiple business. I'm not going to be able to sell it for eight to 10 for whatever reason, so I just need to increase the number that that multiple's based off of. If that's EBITDA, earnings before interest taxes, depreciation amortization, I just need to increase that number and I'm going to get six times, but it's going to be six times 20 instead of six times 10 million, something like that. " And so when they come into companies, they have to sell the 48 years. They have this master plan, how they're going to get higher, multiple, higher metric. And I know this because I lived it, they're automatically thinking, where is the fat in the business?

(00:24:50):

What can we cut? And that generally is employees. A lot of that is employees, it might be locations that a business has and they're generally not based in the local area that business is based in. So they don't know that, hey, maybe this company has this Camden location that isn't as profitable, but it's really good marketing for them and it helps the company longterm. There's long-term value to having, et cetera. They're just looking spreadsheeted out, and I'm being a little unfair, but spreadsheet it out, how do we do what I just described we need to do to achieve the multiple we're hitting? And what I like to tell a lot of business owners is they are underwriting to 20% returns. It is extremely hard in any market to hit 20% return and that's leverage. That's with the debt they're taking on. It's extremely hard to do that.

(00:25:37):

And so they're making a lot of very tough decisions in private equity to achieve that and then they have to achieve this well paying back the debt they took on. And so as I said, in a lot of businesses, the biggest cost are the people and they try to, again, cut fat, not cut bone. I think in a lot of cases where you have these negative experiences like you were bringing up, Ben, they cut bone and they kind of have a worse business than when they did the acquisition, but from their perspective, they have to get out of it the funds at the end of life and hopefully that next buyer doesn't know that, hey, yeah, we lost some people who were really key to our success, but you can't see it in four years. Maybe you see it in eight to 10 years, not to bring it back.

(00:26:15):

But when I think about that business model, I think that there are just realities that private equity firms have to face to hit their fund life to hit those returns. Whereas an ESOP does not have four to eight years, we do not have any of those pressures and you can allow the company to grow organically. We're not worried about, do we have to cut fat? Obviously every business has to make decisions if things happen, but you don't have the same dynamic where the clock starts clicking and we have to be able to sell this for a large multiple, hit a certain return we promised our investors. So in my opinion, I genuinely think ESOP companies are better run and more importantly, they have more longevity. Bellevue's done over 180 transactions. We had one company that struggled that went bankrupt out of 180 transactions, that is a really good track record and that doesn't say anything about Bellevue.

(00:27:08):

That says something about the fact that you now have a long-term approach, how you're running that business, your people are your key assets, they're also your owners. They want to take care of that company. They have that owner mentality being part of that ESOP. And so they're choosing for longevity, they're choosing for sustainability. No one's trying to bet the farm on anything. No one wants to risk that because the guys next to you in the office are also owners and you don't want to screw anything up for them.

Ben Smith (00:27:33):

Yep. And Thomas, you're bringing up a though in my head about a conversation that we had and I asked you this question and I wanted to ask you this question on this podcast too because I thought it was a light bulb moment for me. So the thing that obviously stood out, what we talked about is the ownership that they're selling, they get tax advantages, employees. So there's ways that they're getting structured when they receive shares that they can get tax advantages. So I'm kind of going like, geez, all these people are getting, all these stakeholders are getting all favorable tax treatments in all these different ways. And it's not accidental, but the government of course always wants their tax dollars. It feels

Intro / Outro (00:28:16):

Like,

Ben Smith (00:28:16):

Hey, there's always this, I want my cut of all this success and I want to be taking part of this. So my question to you was a bit ago when we talked was, why the heck would the government support this structure where they're giving all these tax advantages away? That just didn't make any sense in my head. So I'd love to hear you answer it on this show.

Thomas Flynn (00:28:38):

Yeah. And I think a good background to this answer is there are certain states that will even pay companies, they will pay the cost for them to do ESOPs because they so want to avoid them selling to private equity. Colorado, as one example, pays companies $150,000 to do an ESOP transaction just to try to keep that company local. From the government's perspective, I think it's manyfold and we do so many deals that we actually have people at the IRS that we talk to and from their perspective, they're like, look, we don't know if they're pretty candid, social security, the savings that people have, et cetera, we don't know if that will ultimately be enough for a lot of folks when they call retirement. And there is a huge savings and investment gap in the US versus what people will need, especially as people are going to retire later and later.

(00:29:33):

So I think a lot of folks in the government, and this is why you get such high support in Congress where nothing is really bipartisan, but ESOPs really are, they're continually expanding them. They say, okay, this is going to be retirement for people. They kind of default into it. You can't not participate in an ESOP. I always tell participants at rollout presentations, "Well, if you don't want the money when you retire, you can always give it to charity if you want, et cetera." From that perspective, I think the government sees it as, okay, that will be savings that these people, these employees will have that we don't need to be as concerned about when that generation retires or as those folks leave. And I also think that there's a little bit of a lost promise for a lot of Americans in my generation, they hear about what pensions used to look like, what pensions used to be, where you were going to get this promise, payment, et cetera.

(00:30:25):

That wasn't really sustainable because businesses change, a lot of things happen, et cetera. And I think the ESOP, because it is valued based on the company's performance, has almost become the new pension for a lot of folks. And I think that's why the government looks at it the way it does, not to tout Republican or Democrat, but in these congressional hearings, which you continually hear on ESOPs is retire with dignity. They get to retire with dignity. They don't just have their salary, their wage, hopefully they were contributing to a 401k, but they're retiring with dignity in an ESOP and the NCO, the National Center for Employee Ownership does these studies. Again, it's probably biased to some extent, but they look at Form 5500s where they look at 401k accounts and they look at 401k and ESOP and they find that ESOP employees are retiring with almost a hundred percent more value in certain cases.

Ben Smith (00:31:15):

It's a lot.

Thomas Flynn (00:31:17):

It's a tremendous amount of money. And so I think for the government that is filling a concern or a gap that they have on what is going to happen at retirement, especially if people aren't putting enough into their 401k and to their IRAs. Yeah.

Curtis Worcester (00:31:30):

No, it really just speaks to, I think, Thomas, early on in this conversation when we were talking about the history of ESOPs even is just it's encouraging that broader ownership and wealth creation among everyone, right? I think

Intro / Outro (00:31:43):

That's

Curtis Worcester (00:31:43):

... Yeah, exactly. So I really appreciate that. I do want to pivot a little bit on you here. I know I asked a question a litle bit ago about if I was the employee of a company that goes ESOP, now I'm going to put on the owner hat. So essentially, what does this process look like? So say I'm the business owner, I own a company, I'm considering going the ESOP routes. What does that process look like? Where do I start? What do we do?

Thomas Flynn (00:32:12):

Oh boy. Yeah. I mean, that really is my life to some extent. So what I always like to do with folks is I have an introductory call and I explain how the transaction works. And I mean, the questions I get are always, well, are my employees going to take over the thing? Are they going to be able to declare August off, take the month off? And so I always get the questions out with control, how things don't really change, here's what happens. We need board trustee. I explained a lot of those questions in the introductory call. And as I said at the beginning, after that meeting where I walked them through a lot of what we've talked about today, if someone is retaining or still with me for 20% of what I said, that's a win and that's a goal. After that, if they're still interested ... And as part of that call, I should mention a lot of folks, the ESOP doesn't make sense.

(00:33:04):

And just to be candid and maybe talking against my book a little bit, but our business is 100% referral. So the thing I want to avoid from my perspective, and this is true of a lot of advisors in this space, is I cannot have a transaction that didn't work out because that's an angry customer and that is going to be a lot more negative to me than having closed one deal. So I also ask them from a feasibility perspective on that call, how many employees do you have? How profitable is the business? Because an ESOP has costs, it has administrative costs, et cetera. And if those numbers don't make sense, I tell the owner, "Hey, look, I don't know if an ESOP at this size is right for you. However, if you're going to grow in the future, definitely keep in touch, ask me more questions." Or there are alternative ways to giving ownership to employees, Phantom Equity, SARS, those sorts of things.

(00:33:52):

So that is part of the initial call. Then we jump into the numbers and it is a requirement at Bellevue at least that we run a sample model with every single owner that is considering an ESOP who wants to move forward and who we think makes sense to move forward. And so I will show them, one, can the company afford this transaction? That's feasibility 101. You can't afford it, don't do it. Can the company afford it? But that's kind of a low bar. I then want to show them, are you actually better off selling the company to an ESOP with the tax incentives than owning 100% of a taxable entity? And generally depending on the state, I can get that within maybe five to eight years, maybe even early. I have a client in Los Angeles and given the high tax rate she's paying, she's better off in the first three years to have done the ESOP and she wants to stay for another 10 and that's including the upfront costs, et cetera.

(00:34:44):

So I show them a sample model and then that also gives them a sense for what's in it for me, can my company afford it? But also, what does this look like for my employees? And I don't have exact names, I don't have a census, but they can start to get a handle for, okay, that guy that I want to run the business, he's kind of my number two. If he had X percent of the stock in the ESOP, if we ran that out 10 years, yeah, that's a really meaningful number for him. That would be really cool. And what I want to say on this podcast is the coolest part about what I do for a living is, and I think this would surprise a lot of people, the owners tend to not care very much about what they're getting out of it. It might be 20 to 30% of their questions.

(00:35:24):

It is almost all about their employees, key people, key guys, and they want to see names, how can I make it interesting for them, et cetera. So we'll do the sample model. At the end of the sample model, when someone has a good understanding of the numbers, more quantitative, maybe they've gone from 20% to 50% that point in time. Then I generally say, do you want to speak to any of our client referrals before you formally engage us, I think you have a good or you engage any ESOP advisor, I always think it's best practice talk to a referral. And if people are considering an ESOP listening to this, don't talk to a referral that just did their deal two days ago. Talk to a referral that's been in it for a few years and talk to the owner and maybe talk to a manager in the business.

(00:36:06):

I always think that the more mature ESOPs, those are the ones you should want to talk to. They decide, "Hey, we want to move forward. We get engaged. We then will prepare what's known in the space as a feasibility analysis. We'll run through their census, we'll run through their historical financials, we'll do a valuation estimate for them and we'll show them basically head to toe what this transaction looks like for you as a former owner, a seller, for your company, for your employees, quantify everything that we can quantify at that stage. And then you start getting to the more formal side of the process. If you want to move forward after the engagement and you'll notice that I've built a lot of bus stops or off ramps across this where someone can just say, Hey, Thomas, you're a nice enough guy and not for me.

(00:36:45):

And I'm like, no worries. We can talk later or it was great to meet you, great to hear your business history. Then they engage a trustee, an independent third party trustee. Trustee engages a valuation firm. We go through evaluation at the end of that third party and that involves management interviews, sharing your financials a lot of that information. The end of that valuation, you will get a valuation, you'll get a number for your company. If you're not interested, we can stop the process there. Negotiation is completely fine from the perspective of an ESOP you're selling to a third party. So we want there to be a negotiate, unless you're really happy with the number. If you're unhappy, let's negotiate it. I represent the company and the seller, the trustee and the valuation firm are the other side. They're the buyer to the transaction. It's obviously not as, I want to say antagonistic as a private equity or a third, but again, everyone is a third party here.

(00:37:38):

You have to negotiate the transaction. So you end up getting a number you're happy with, the owner's happy with the number. We'll update obviously our modeling to show them this is what this would look like. Then you start hiring the attorneys, trustee, the third party, the independent trustee, they'll have their own legal counsel. You'll have your legal counsel. We'll dock everything up. We might have specifics around your, I want this person to get some warrants or stock appreciation rights. I have a son in the business. I'd like him to get something in addition to what he might've otherwise had because of his relationship to me. There are rules in terms of all of that. So we build in all the plan customizations and then you close the transaction. And then a month later, Thomas or another advisor goes and meets with your employees and tries to explain that crazy thing that took six to 12 months in 30 minutes or an hour.

(00:38:27):

Yeah, that's kind of the process.

Curtis Worcester (00:38:29):

That's fantastic. And I think you just snuck in a clarifying answer for me, but I'm going to ask it anyway. So just for people listening, if this is completely new and I'm a business owner and I'm sure this varies case to case, but what are we talking for general idea? Again, I heard you just say six to 12 months, but in terms of I see this thing, I hear this podcast and I say, I want to do that. What am I looking at for turnaround time here to get this done?

Thomas Flynn (00:38:53):

So I don't know if he's one of your listeners, but this client will know who he is. I got a call Memorial Day weekend, the Friday before Memorial Day weekend in 2024 and he said, "Hey, we have to close by June 30th." For whatever reason, his company did not want to be a taxpayer on July 1st. For whatever reason, that was it. I need to close by June 30th. And we had had some meetings ahead of time, but we hadn't gotten to the trustee stage valuation. We got that deal closed by June 30th. I never want to do that. That's my four weeker, maybe five weeker. I never want to do that again. So if you are considering this, that client was kind of a bad apple in that regard. I would generally assume the fastest we can get a deal done, you're probably looking at seven to eight weeks, probably eight weeks, a couple months.

(00:39:48):

And that's from saying we've done our sample model, you've engaged me. So that's really from that point on. But from a timing perspective, I always tell clients, and this is probably talking against my book a little bit, but take your time. It's a really important decision to sell your business. I know it's an ESOP, so you're still involved. It can kind of blur the lines, but you are selling the business to a trust and the trust is independent of you. There are things that you will not be able to do now that you're ESOP-owned that you could have done before as an owner and that's just the reality. So think it through, talk to referrals, talk to me. I want you to be as educated as possible because outside of just avoiding bad deals or deals that shouldn't have ESOP, I want to avoid someone six months after close giving me a call and saying, "I didn't know this.

(00:40:36):

" Or, "Hey, this came as a surprise." So I always tell people, take your time. This client really wanted to close on June 30th. He had a big competitor who had done an ESOP and he just said, "Do what you did for them for me. " So he was really bought in, but I think the best deals that get done, the owner or the former owner knows exactly what they're getting into and they even loop in some key folks, key management. So those folks also have a good sense. And then when we close, it's kind of muscle memory. People know, "Yeah, I haven't done this before, but I asked Thomas a billion questions. I know those answers. And if my employees ask me, I'm not going to have to send them to Thomas. I'm going to be able to answer those questions." But eight weeks is probably what I would say.

Curtis Worcester (00:41:19):

Okay. Not three or four. Got it.

Thomas Flynn (00:41:22):

No, please, please not do more.

Ben Smith (00:41:25):

So Thomas, I want to ask a question again, just from a listener perspective or I'm an employee of an ESOP and this is working great and I'm getting shares. There's an allocation that's happening and I'm building some wealth as we talked about as I'm getting some of these funds. Well, when I retire from my organization that I work for, well, I can roll over my 401k or I can ... Those are fairly easy, common transactions. Can you just describe the process of, okay, I own these shares of my employer and I need to kind of get cash here at some point. So how do I turn these shares into actual retirement income? What's that process look like from a, I raised my hand, I'm ready to retire, I'm ready to get done, and what do I do now?

Thomas Flynn (00:42:19):

Okay. So I want to put a flag in the ground that most of our deals are KSOPs, ESOP within a 401k, which makes it a lot easier to describe what happens. But some ESOPs are separate, 401k, separate from the ESOP, two different plan documents. Those will be different depending on how your ESOP is structured than what I'm going to describe, which is a little more seamless. So what happens in an ESOP is, and there are such things as I'm still an employee and I'm going to get some cash from my ... That's an in- plan diversification. And so if your plan documents allow it in that ESOP, you're that employee, you might at the end of the year as declared by the board or management, receive an offer basically to say, "Hey, I will buy up to 10% of your stock and it has to be nondiscriminatory." They can say everyone above the age of 50, whatever, but I will make that offer.

(00:43:10):

And so an employee at that point in time can take their statement, say, "Okay, 10% of this at the most recent annual share price, I'm going to get that cash." I then give the company or the ESOP depending on how that plan wants to do it, my shares and then I get cash. In the KSOP, the cash goes right to the 401 super seamless. Just goes in their 401k, invested how they want to invest it. If they're separated, it's a little more complicated. The ESOP trustee has to invest that cash. They have to do something with it, et cetera. There are ways of getting it over to the 401k, but it's a lot more difficult. So in the KSOP, money just goes in, your shares go back to the trust or they go back to the company and put in treasury. And that's when you're still an employee.

(00:43:51):

And there's also required minimum diversification. So over 55 years old, you've been there for at least 10 years, you'll have the ability to diversify up to 25% of your shares. If you meet those two parameters, very few employees, this is actually something I'd like to say on the podcast here. Very few employees take advantage of required minimum diversification or RMD and very few employees I've seen have taken advantage of in- plan diversification. I think the reason is because they've seen the space go up so high and they're like, why would I want to walk away from this? I highly recommend every time someone asks me, take advantage of diversification and ESOP is great. Your company could be riproaring growth, et cetera, but it is still one company and things can happen. Things can always happen in business. AI could make your business unsustainable in a year.

(00:44:42):

Take advantage of diversification, take that cash, invest it in a diversified pool of assets or diversified securities. I always recommend people take advantage of that. That is in plan. In an ESOP, when you retire, you terminate from the plan, you're no longer eligible, you're no longer participating in the plan, you're not on payroll anymore. The process is much more specific. Okay. Now we've created what's known as a repurchase obligation for the company, for the plan sponsor. Purchase obligation, like it sounds, you are required the company, the sponsor is required by law to buy this person out. They can wait five years, but that person continues to get the upside associated with their ownership. So let's say that I retire from the company, I'm 62 years old, retired from the company and I have $20,000 worth of shares. If that company decides not to buy me out at 20,000 and that share price goes up 10% the next year, I'm now sitting on $22,000 of value in there until that company monetizes it.

(00:45:41):

And that money, again, in the case op, that money, they will send you a form and you can tell them, "I want to put it in my 401k when I was at..." And then they can do the rollover. "I want to receive a check." And then there's all these disclaimers around, hey, pre-tax, post-tax, Roth, et cetera, company can write you a check. If it's below a certain amount, the company generally just writes a check. Above a certain amount, $7,000, you get to select what happens with your money, or I want to put it into a direct rollover into an IRA, et cetera. The TPA of the ESOP will do that once you sign your form, you'll then give the form to the plan sponsor, they'll give it to the TPA, they'll take care of you. Whatever you selected, check, put it in the 401k, put it in an IRA, whatever it might be.

(00:46:23):

Again, for dollar amounts above 7,000, I think below $1,000, they just always write a check and they just send it to someone. And that's essentially how you get bought out. It's required by law. And sometimes I have employees who say they waited a year to buy me out. I left in January and I didn't get my money until a year later. And I always tell people, well, the share price they use, your share price gets updated once a year in an ESOP. This is not publicly traded. We don't know what it is second by second, and a share price is stale after 12 months. So if you leave at a certain point, let's say you've left in January, they have to wait until their January of that year, they have to wait until the previous year's valuation gets done, which can take several months, et cetera.

(00:47:08):

If you leave at the end of the year, so if you leave in November and every employe gets 30 days notice, they can waive that notice. But if you leave in November, they can buy you out at the prior year share price. 12 months hasn't gotten out. So if you're an employee listening to this in an ESOP and you think the company's done well, try to leave in January, try to leave right after the last year so you can get the higher share price. But that's generally how it works when you have a repurchase obligation and someone is redeemed.

Ben Smith (00:47:36):

Perfect. And Thomas, I want to just say something there too. You made a point about diversification and I think that was a lesson I think that unfortunately Enron employees learned as they're getting told, "Hey, buy all these shares and our stock can never go down." And so having diversication to your wealth, as you said, this is a big wealth multiplier that can happen by having ESOP shares and your retirement plan with your 401k and things like that. But at some point de- risking your financial life makes a whole lot of sense and in diversifying that too, right? Well,

Thomas Flynn (00:48:15):

100%. And again, maybe talking against my own book here a litle bit, but if you think about yourself as an employee in an ESOP, I'm getting my wages from this company. So the company has to be profitable or perform to pay me my wages. That's my main source of income. Hopefully I'm taking some out to put it in a 401 account and hopefully my employer's offering matching. But then in an ESOP and I'm looking at my retirement, I'm projecting it out in an ESOP now my wealth, a lot of my retirement wealth is associated with the company. So I now have my income, which I pay my day-to-day with, I use for my retirement assets and I have this hopefully nest egg for my retirement and it's all correlated with the performance of this company. And so if you can diversify that, take it out, put it into a 401k, put it into an IRA, whatever we can do, invest it in the broader stock market, bonds, et cetera, diversified pool of assets, take away this correlated risk that something happens with the company where not only do I lose my job, my ESOP shares are worthless.

(00:49:13):

So I continually tell people and hopefully people listening diversify your shares as much as you can. I think it's a great thing to do. That company continues to perform really well. Don't worry, you'll continue to get more shares. You get an annual allocation and you'll continue to get the share price appreciation of what you have. But I tell a lot of my clients and Bellevue might be a little bit different from other ESOP advisors in that we're constantly telling our clients, offer diversification to your employees. We never want the Enron situation to occur where people were expecting it and then for whatever reason the company went bankrupt and then not only did they lose their job, they lost a lot of their retirement assets.

Ben Smith (00:49:50):

Absolutely.

Curtis Worcester (00:49:51):

Yeah, that's a very important point. And it kind of segues right into my next topic, Thomas, which is, so I guess we're going in this, I don't want to say risks or downside, but what are some of the maybe common misconceptions or risks that employees should just be aware of? I know diversification is something we just talked about and is a big one, but I guess when you're doing your rollouts and somebody sits down and you say, "Congrats, you're now an owner," what's the key thing or risk that they should be thinking about as they move forward from this point?

Thomas Flynn (00:50:29):

That's a great question. So we talked about what I think the key risk is, and I should mention, and I should have mentioned at the beginning, Bellevue is an ESOP. So we have done this deal. We're a hundred percent owned ESOP owned. So I am a partial owner of Bellevue as are all of my colleagues who are eligible. So I always can provide, "Hey, what is it? " And I'm not 59 and a half, people who can see on video will know that. So I always can provide the employee's perspective in an ESOP. You're protected by a trust so you don't take liability associated with your ownership. If someone owned a corporation separate from an ESOP and someone sued the corporation, there's a chance that they can go after their personal assets, et cetera, that can have ... ESOP, your ownership is protected by the trust, number one.

(00:51:15):

Number two, you get this upside in the company that you never had to pay for. The only time I pay for my ESOP stock is I show up to work, I earn my wages, I basically just have to be an employee to get my allocation. And then number three, I get a lot of tax benefits. So at my age, making a Roth election on Bellevue's ESOP stock when I'm 60 years old or whenever I ultimately retire, hopefully not too much after that 65, 70, I will not have to pay tax on it when I get the money out. So huge benefits from an employee perspective, but we talked about the negative, which is a lot of my assets and retirement are now associated with one company and I think we're a great company, but I want to be able to diversify, put money into a 401k account every time I can.

(00:51:59):

And that's your downside, I think, as an employee. As an owner, the biggest regret, this may surprise some people, but the biggest regret I generally hear is a few years after the transaction, Thomas, I gave someone too much in the ESOP. I thought they were going to be my number two. I did a special allocation of stock. I gave them SARS, whatever it might be. SARS are just stock appreciation rights, like warrants. I gave them too much and they left. They left the company. And normally if you're a minority owner in a private business and you leave, you can talk about it at a cocktail party. I own 5% of this company, but you don't have a lot of rights unless the majority in an ESOP required by law to buy out their shares and you have to. There's nothing I can do to sell.

(00:52:44):

You can wait five years, but then they get the appreciation. So the biggest regret I've heard from owners, and I generally tell people not to give too much, don't do too big a special allocation, et cetera, is they gave too much to someone that they thought was going to be their number two. They

Curtis Worcester (00:52:59):

Just took it.

Thomas Flynn (00:53:00):

And they just took it. And it doesn't have to be malicious at all. "Hey, my wife took a job somewhere else or my husband had to move for whatever reason, just didn't work out. You literally have to buy them out. "That is required by law. That's generally the biggest regret. Outside of that downsides, I always hear," Well, Thomas, what if our company can't find my successor? What if I can't find that person? "And this sometimes happens. And as part of the feasibility, I always ask, do you have someone or someones that you think can run this if you retire? And if they say no and I want to leave in one to two years, I say," It was a pleasure, meaning an ESOP is not right for you. It's just not going to work. "But I always get asked the question," Well, what if I can't find that person?

(00:53:41):

"And then I say," Okay, let's look at the numbers. If we just run this out, you're tax-free, the company saves that money, is the company better off not paying taxes, paying the cost of the transaction, paying the administrative costs than it is if we ran it out and you still paid taxes. "A lot of cases, it's still better off and they can use the ESOP and I always tell this you can use the ESOP to attract that next person. Absolutely. "Hey, I'm a doctor's office. I had this client, a $10 million valuation and he was telling this poor 33-year-old recent grad who has a ton of debt for medical school, just buy 10%, just come up with a million bucks." And she was like, "No way, I'm not going to do that. Are you crazy?" And he almost lost a really good candidate and instead went ESOP and just said, "Hey, you'll get your shares.

(00:54:29):

You will get your ownership naturally through the ESOP. I will get bought out. A lot of my buyout will come from tax savings. Don't worry about it. " So from an owner's perspective, I really think it's being too generous to key folks and not realizing, again, whether it's malicious, they screwed you or something just changed, hey, you are on the hook to buy them out now.

Curtis Worcester (00:54:52):

Yeah, that's really important.

Ben Smith (00:54:54):

Well, Tom, so I want to ask just maybe the success question here, because again, you talked about you've done a lot of deals and you've only had really one failure here, but obviously success can be different variances, right? You can have different levels of success. I want to just ask from your perspective, when ESOPs are working well, just what does success look like for both the company and the employees?

Thomas Flynn (00:55:14):

From an employee perspective, I think anyone can probably tell. You don't need to be an ESOP advisor or a retirement person in the space, but when you walk into a business and the employees have an ownership mentality, one of my favorites of all time was one of my clients I was sitting down waiting to meet with the CEO of the company and they had been an ESOP. He was the third CEO, so the original founder, someone else and now him and they had a person answering the phone at the desk and I assume and I asked her after and she confirmed that the person on the phone was not too happy about something that had happened. So it's like a customer service call and they were asking to talk to the owner and she said, "You are talking to an owner." And I was like, "Okay, this company's going to be fine." Every employee has that ownership mentality.

(00:56:05):

Nice. When it doesn't work, and again, you can tell you walk in and no one really knows what an ESOP means to them. It could be early in the ESOP. They haven't seen a lot of benefits. The older in terms of 10-year, not age employees who have been there for a while aren't taking the newer guys under their wings and saying, "Hey, when I first started, I didn't know what this was, but here's a little more about it. " It's a little more forced where they just hand someone a pamphlet and say, "Hey, welcome to the ESOP." That is what I think an unsuccessful ESOP looks like. Not in terms of the owner, they probably had a great transaction. They're getting paid off, they got all these tax incentive, et cetera, but really because we have this opportunity cost of that additional benefit of ownership mentality where employees are thinking like owners, they're trying to save costs, they're trying to win those extra customers, they're pushing extra hard.

(00:56:58):

We've just left that on the table because people don't understand what the benefit is. So I think that's success versus failure and that's really, really hard to do to maintain that culture and get everyone to think like an owner. I have some clients who do it extremely well, committees, offsite, share releases, celebrating when someone vests in the ESOP, celebrating certain years and milestones, et cetera, that they do that extremely well. And I always want to export that to every ESOP if we can. From an owner perspective, that's more interesting because I would say I have a lot of happy owners who it's a dollar and cents thing. They just, "Hey, Thomas, what you modeled. I got out of the transaction. That's really what I wanted." But I think for a lot of them it is, I wanted to benefit, but I really wanted my key person, I really wanted her to benefit, and now I get to see that she really is benefiting and she got it and she's keeping it.

(00:57:52):

And I think for a lot of owners, we recently had our conference and we had an ESOP that's been around for 15, 18 years and the original owner was talking about it and he really liked the legacy protection. He liked the fact that his employees were at the conference and the new CEO was at the conference next to him and he had built something that he thought will be around in a hundred years, state of Maine, construction company, et cetera. And I think from their perspective knowing that, hey, even though I'm in Florida or I'm retiring, every time I check in, this thing is a well-oiled machine and this will be around in 50 to 100 years. And even though my family might not want to work in the business anymore, they're going to know that, hey, our name's on the door, but it's really these employees who are now part of the family.

(00:58:36):

They've protected that legacy. So I actually think as time goes on and you get into, I've left the business, I'm now retired, they really care about the legacy protection. I was having dinner with one of my clients last week and he was saying, I was talking to him about his ESOP and things we can do. And he's like, "Thomas, I don't do anything with the business. I'm completely out of the business and that's why I'm happy. This all worked. I did not have to sell it. I did not have to do anything and my employees are crushing it. " And I was like, "Okay, I will not bore you at this dinner about your ESOP. I will talk to your employees." And from his perspective, he was like, and I know this thing's going to be around in a hundred years. And when we originally talked to him 15, 20 years ago, his issue was when Bellevue did, I wasn't at Bellevue at the time, but his issue was, "Hey, my daughters, they want nothing to do with my business.

(00:59:29):

They want nothing to do with it. I need to find a way to include my family, which is my employees in this. " ESOP worked out for him. So that was a long-winded way of answering what success looks like for both, but I really think that that's probably the answer.

Curtis Worcester (00:59:43):

Yeah, no, that's fantastic. I think you did a great job there. And you tied into our final question for you, Thomas, which is also about success, but we're putting the spotlight on you here. Oh

Ben Smith (00:59:56):

Boy.

Curtis Worcester (00:59:57):

Yeah. So of course, again, the name of the show Write retirement success in Maine podcasts, so I got to ask you the retirement question. No matter how far away it may be, how are you going to find your own personal retirement success? What does that look like to you at this point?

Thomas Flynn (01:00:16):

Oh yeah. Obviously on the ESOP side, I'm a huge fan of the Roth election of 401k. I mean, my advisor always says that I'm a stellar A student on this, but I genuinely max out as much as I can. Bellevue is kind enough to do a match and I always make a Roth election on my 401k contributions. I mean, the way I look at it, and I've seen a lot of companies as part of Bellevue, and then I also invested in companies when I was in private equity, private credit, a lot of things can happen and there's a tremendous amount of risk out there. And my job, my income, these things might always change. But if I can know that, hey, I have a certain amount of retirement assets in my 401k in an IRA, I always max out the IRA. I do that backdoor election on the Roth there too.

(01:01:12):

But as long as I can see that, it just makes me sleep much better at night. I know I'm really far away from it, but whenever I talk to people in their thirties who are like, "Oh, that's something for my 50s or 60s." And again, I have the luck to have gone into finance. So I always pull up a chart of the Dow Jones and wars and all these things and just look at the appreciation, look at the compound of wealth. And I think that folks like you guys, not to tout your horn, do a really, really good job and the human brain really can't understand compounding very well. It's really tough for us to understand that. We can understand arithmetic. You start to get into geometry, you start to get into 10, 15, 20, 30 years, really hard for people to understand that. Absolutely.

(01:01:53):

So a good advisor that can show someone, "Hey, put it here, let it compound. This is what the market has historically done. This is what these assets have historically done." It blows people's mind when they see that at retirement what it will be. Or on the other side, it scares them, "Oh my God, I haven't put enough in there." So my retirement success is to max out everything I can

(01:02:12):

Into IRAs, into 401ks. Obviously we have our ESOP. I will diversify every time I can. And so my clients who are listening who do not diversify, I'm literally an ESOP advisor and I am doing that for myself because again, it just makes me sleep much better at night.

Curtis Worcester (01:02:30):

That's so great. It's so great.

Ben Smith (01:02:31):

Yeah, Thomas, really good answer. And again, thank you for all your expertise today coming in and sharing it. I know, again, a lot of questions out there, a lot of people that are impacted in lots of ways, but this has been a really great insight for us personally, but also I know for the listeners here, but we'll definitely like to have you come back on the show at some point and maybe give us an update on what's happening in the ESOP world. But again, thank you for now for coming to the show. We really appreciate it.

Thomas Flynn (01:02:59):

Yeah, absolutely. And it was a pleasure. Thank you guys.

Ben Smith (01:03:01):

All right. Thanks, Thomas. Bye-bye. Well, that was a really great conversation to have and I think a really important one for people here in Maine. ESOPs are creating an opportunity for ownership, but they're also requiring a lot of understanding to make the most of them. And I really do think a big takeaway in this whole thing, if you are part of an ESOP, you're not just an employee anymore, you're an owner and that comes with both opportunity and responsibility. So if you have any questions about how an ESOP fits into your overall financial plan, especially as it relates to retirement, we'd love for you to reach out to us and we'd love to help you understand it. For those that are listening here and want to dig in a little more and find some more resources, you can go to our blog at blog.guidancepointllc.com/126 for episode 126.

(01:03:49):

But we really do appreciate you tuning in. Thank you to Thomas Flynn for giving us his expertise and insights today, but thank you for listening and we will catch you next time.

Outro (01:04:01):

Ladies and gentlemen, you've just listened to an information filled episode of the Retirement Success in Maine Podcast. While this show is about finding more ways to improve your retirement happiness, GuidancePoint Advisor's mission is to help our clients create a fulfilling retirement. We do financial planning so that people can enjoy retirement and align their monetary resources to their goals. If you are wondering about your own personal success, we invite you to reach out to us to schedule a 45-minute listening session. Our advisors will have a conversation with you about your goals, your frustrations, and your problems. Make sure you check out GuidancePoint advisors on our blog, Facebook, and LinkedIn, and you can always check out more episodes of this podcast on iTunes and Spotify. And of course, keep on finding your retirement success.