Plan Design with Kelso

Use Kelso to evaluate and optimize your ESOP’s plan design features.

Key Plan Design Elements

Vesting Schedules

Evaluate different vesting options:

Cliff vs. graded vesting
3, 4, 5, or 6-year schedules
Impact on participant retention
Cost implications
Competitive considerations

Example Analysis:

Ask Kelso: "Compare 4-year graded vs. 6-year graded vesting"

Results:
- Participant impact by tenure group
- Company contribution savings
- Retention implications
- Industry benchmarking
- Compliance considerations

Allocation Formulas

Common allocation methods:

Comp-based (pro-rata compensation)
Comp-plus (adds tenure component)
Equal (same to all participants)
Points-based (custom weighting)

Use Kelso to:

Model different allocation approaches
See impact on different employee groups
Calculate cost differentials
Ensure non-discrimination compliance

Eligibility Requirements

Standard options:

Age and service requirements
Immediate vs. delayed entry
Hours of service thresholds
Different rules by employee class

Kelso can help:

Forecast participation rates
Calculate coverage test results
Project eligible population growth
Model cost of broader eligibility

Distribution Rules

Key decisions:

In-service diversification age/balance
Distribution timing options
Installment period lengths
Re-enrollment provisions

Analysis with Kelso:

Cash flow impact of different rules
Participant preference modeling
Compliance verification
Industry practice comparison

Use Cases

Case 1: Optimizing Vesting for Retention

Situation: High turnover in first 3 years Analysis:

Model current 4-year graded schedule
Test 3-year cliff alternative
Compare 6-year graded option
Calculate retention incentive value

Kelso’s Recommendation:

4-year graded provides balanced approach
Estimated retention improvement: 15%
Modest cost increase: $50K annually
Better alignment with industry norms

Case 2: Adding Tenure to Allocation

Situation: Want to better reward long-tenure employees Analysis:

Model current comp-only allocation
Add tenure component (various weights)
Calculate impact by service years
Test non-discrimination compliance

Kelso’s Recommendation:

70% comp / 30% service balances goals
Long-tenure employees see 25% boost
Passes all compliance tests
Annual cost neutral (reallocation only)

Case 3: In-Service Diversification

Situation: Considering adding age 55 diversification Analysis:

Forecast eligible population
Model election rate scenarios
Project cash flow impact
Evaluate timing alternatives

Kelso’s Recommendation:

Expect 40% election rate
Annual cash need: $200K-400K
Consider age 60 to reduce cost
Phase in over 2 years

Best Practices

Use Real Data

Better inputs lead to better recommendations:

Actual census information
Historical turnover rates
Real valuation trends
Current plan costs

Test Multiple Scenarios

Don’t settle for first option:

Create 3-5 alternatives
Include conservative and aggressive options
Test combinations of changes
Consider phased implementation

Consider All Stakeholders

Balance different perspectives:

Participant fairness and satisfaction
Company cash flow and cost
Competitive positioning
Trustee fiduciary concerns

Verify Compliance

Always check regulatory requirements:

Coverage tests
Non-discrimination rules
Anti-cutback provisions
Adequate consideration

Document Your Analysis

Save your work for the future:

Board presentations
Trustee documentation
Annual reviews
Regulatory support

Common Questions

How often should we review our plan design?

Best practice is annual review, with major evaluation every 3-5 years. Kelso makes it easy to do regular check-ins.

Can we test multiple changes at once?

Yes! Kelso can model multiple plan design changes simultaneously to show combined impact.

Will plan changes require IRS approval?

Most design changes can be implemented via plan amendment. Kelso will flag changes that may require special consideration.

How do we know if a change is worth it?

Kelso provides cost-benefit analysis, showing both financial impact and qualitative factors to inform your decision.

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Plan Design with Kelso