Understanding The Moving Parts of a

UNDERSTANDING THE MOVING PARTS OF A "UNITIZED" EMPLOYER STOCK FUND

UNDERSTANDING THE MOVING PARTS OF A "UNITIZED" EMPLOYER STOCK FUND

UNDERSTANDING THE MOVING PARTS OF A"UNITIZED" EMPLOYER STOCK FUND                                                                                                        by Tom Leder, Senior Consultant, Pentegra Retirement Services

Offering your 401(k) plan participants the ability to invest in your employer's company stock can be a convenient way for your employees to share in the growth and prosperity of your organization.  Owning employer stock also provides those participants with an added incentive to help the organization achieve its goals.  Along with the added responsibility of monitoring the appropriateness of such an investment, it is also important to understand the mechanics of how this investment is managed.

Similar to a mutual fund, a unitized employer stock fund invests not only in stock offered by an organization (one organization) but also cash.  This cash liquidity component of the fund is required in order to facilitate daily transactions such as investment transfers or distributions from the fund.  An appropriate cash liquidity level is established as a percentage of the entire investment fund and is based on plan provisions, estimated activity levels, and market availability of employer securities.

HOW DOES A "UNITIZED" FUND OPERATE?

Unit Value Accounting is a way to account for the total value of employer stock and cash on a daily basis.  Unit values (similar to the stock's share price) and number of Units (similar to number of shares) are used to communicate the dollar value of employer stock fund positions.  Participants are technically purchasing Units of an Employer Stock Fund, not actual shares of employer stock.  (This is similar to a participant that invests in an S&P 500 Index Fund in that the participant is technically not directly purchasing individual stocks of, for example, Exxon Mobil Corp, Apple Inc or General Electric Corp.  The S&P 500 Index Fund is investing in actual shares of stock of those companies).  As contributions to the Fund are processed, they are converted to Units in the Employer Stock Fund.  The value of each Fund Unit is comprised of both the value of employer stock as well as cash.  The Unit value of the Fund is determined at the end of each day by dividing the total market value of the Fund as of the current day's end by the total number of units held in the Fund by all members as of the previous day's end. 

At any time, a participant's "Equivalent Shares" of actual employer stock can be determined based on their holdings in Units of the Employer Stock Fund.  Although the number of Units of the Employer Stock Fund will not change if no additional investments or withdrawals by that participant are made, the "Equivalent Shares" of actual stock in those Units can fluctuate on a daily basis even if the participant is not investing additional money into the Fund or making withdrawals out of the Fund.

The following provides a basic level breakdown of the moving parts of a unitized employer stock fund for hypothetical company "Goliath, Inc." under the Goliath, Inc. Employer Stock Fund.

 

Part 1 - Illustrates start of Fund

Maria invests $75,000 in the Employer Stock Fund in her 401(k) plan. Currently, she is the first and only participant in the Fund.  Each Unit of the Fund is arbitrarily valued at $10 per share.  Each share of Goliath, Inc. Stock in the Fund is valued at $10 per share.

The Employer Stock Fund owns 7,500 shares of Goliath, Inc. Stock

Total Units of Employer Stock Fund = 7,500

The Employer Stock Fund owns $0 Cash

Total Employer Stock Fund value = $75,00  

  • 7,500 Units x $10 per Unit
  • Or…7,500 total shares of Goliath, Inc. Stock in Employer Stock Fund x $10 price per share + $0 Cash

Equivalent shares of Goliath, Inc. Stock per Unit of Employer Stock Fund = 1 (7,500 Shares of Goliath, Inc. Stock / 7,500 Units of the Employer Stock Fund).

Maria owns 7,500 Units of the Employer Stock Fund, worth $75,000 (7,500 Units x $10 per Unit).  The equivalent shares of Goliath, Inc. Stock Maria owns = 7,500 (1 equivalent share of Goliath, Inc. Stock per Employer Stock Fund Unit x 7,500 Fund Units) with a market value of $75,000 (and $0 cash).

If Goliath, Inc. Stock Increases 10% in value to $11 per share:

  • Employer Stock Fund Unit value increases to $11 per Unit (Total shares of Goliath, Inc. Stock in the Employer Stock Fund = 7,500 x $11 per share + $0 Cash / 7,500 Units)
  • Maria's investment Increases 10% to $82,500
    • 7,500 Fund Units x $11 per Unit
    • Or…7,500 equivalent shares of Goliath, Inc. Stock x $11 per share + $0 Cash

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Part 2 - Illustrates payroll contributions and Increase in Cash Liquidity in Employer Stock Fund

So far in this example, there is currently no cash in the Employer Stock Fund…the Fund is 100% invested in Goliath, Inc. Stock.  Cash liquidity should constitute approximately 5% of the fund.

Jennifer proceeds to invest $500 per pay period into the Employer Stock Fund.  Goliath, Inc. Stock price remains at $10 per share.  The Unit Value of the Employer Stock Fund remains at $10 per Unit.  Each pay period, 50 new Units of the Fund are issued that Jennifer purchases.  After 8 pay periods, Jennifer has $4,000 invested in the Employer Stock Fund.  Jennifer owns 400 Units of the Fund worth $10 per Unit.

During this time, no new shares of Goliath, Inc. Stock were being bought by the Fund as the additional contributions were invested in Cash for the Fund to reach the target liquidity of 5% (approximately $4,000).

Total Fund Units in the Employer Stock Fund = 7,900 (Jennifer = 400, Maria = 7,500)

Total Shares of Goliath, Inc. Stock in the Employer Stock Fund = 7,500

Total Cash in Employer Stock Fund = $4,000

Total Value of the Employer Stock Fund = $79,000 (7,500 shares of Goliath, Inc. Stock x $10 price per share + $4,000 Cash Liquidity).

Cash Liquidity Ratio of Employer Stock Fund = approximately 5% ($4,000 Cash / $79,000 Total Fund Value)

Equivalent shares of Goliath, Inc. Stock per Unit of Employer Stock Fund = 0.95 (7,500 shares of Goliath, Inc. Stock / 7,900 Fund Units)

Equivalent Cash per Unit of Employer Stock Fund = approximately $0.50 ($4,000 / 7,900 Units)

Maria owns 7,500 Units of the Employer Stock Fund, worth $75,000 (7,500 Units x $10 per Unit).  The equivalent shares of Goliath, Inc. Stock Maria owns = 7,125 (0.95 equivalent shares of stock per Fund Unit x 7,500 Units) with a market value of $71,250 and equivalent Cash = $3,750 ($0.50 cash per unit x 7500 units). 

  • Expressed another way, Maria owns 94.93% of the Total Employer Stock Fund Value ($75,000 / $79,000). Therefore, her equivalent shares of Goliath, Inc. Stock = 94.93% of the total shares owned by the Fund.  94.93% x 7,500 = 7,120.

Jennifer owns 400 Units of the Employer Stock Fund worth $4,000 (400 Units x $10 per Unit). The equivalent shares of Goliath, Inc. Stock Jennifer owns = 380 (0.95 equivalent shares of stock per fund unit x 400 Units) with a market value of $3,800 and equivalent Cash = $200 ($0.50 cash per unit x 400 units).

  • Expressed another way, Jennifer owns 5.06% of the Total Employer Stock Fund Value ($4,000 / $79,000), therefore, her equivalent shares of Goliath, Inc. Stock = 5.06% of the total shares owned by the Fund.  5.06% x 7,500 = 380 shares.

If Goliath, Inc. Stock Increases 10% in value to $11 per share (assuming no change in cash value):

  • Employer Stock Fund Unit value Increases to $10.95 per Unit (Total shares of Goliath, Inc. Stock in the Employer Stock Fund = 7,500 x $11 per share + $4,000 Cash / 7,900 Units)
  • Maria's investment Increases 9.5% to approximately $82,125
    • 7,500 Fund Units x $10.95 per Unit
    • Or…7,125 equivalent shares of Goliath, Inc. Stock x $11 per share + $3,750 equivalent  Cash
  • Jennifer's investment Increases 9.5% to approximately $4,380
    • 400 Fund Units x 10.95 per Unit
    • Or…380 equivalent shares of Goliath, Inc. Stock x $11 per share + $200 equivalent  cash.

Target Liquidity Level Has Been Reached.

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Part 3 - Illustrates significant fund transfer into Employer Stock Fund and Excessive Liquidity Level

John transfers $20,000 into the Fund from his money market fund.  Goliath, Inc. Stock price remains at $10 per shareThe Unit Value of the Employer Stock Fund remains at $10 per Unit.  John is issued 2,000 Units of the Employer Stock Fund worth $10 per Unit.

Total Employer Stock Fund Units = 9,900 (John = 2,000; Jennifer = 400; Maria = 7,500)

Total Shares of Goliath, Inc. Stock in the Fund = 7,500

Total Cash in Employer Stock Fund = $24,000

Total Value of the Fund = $99,000 (7,500 shares of Goliath, Inc. Stock x $10 per share + $24,000 Cash Liquidity).

Cash Liquidity Ratio = approximately 24% ($24,000 cash / $99,000 Total Fund Value)

Equivalent shares of Goliath, Inc. Stock per Unit of Employer Stock Fund = 0.75758 (7,500 shares of Goliath, Inc. Stock in Employer Stock Fund / 9,900 Employer Stock Fund Units)

Equivalent Cash per unit of Employer Stock Fund = $2.42424 ($24,000 cash / 9,900 fund units)

Maria owns 7,500 units of the Employer Stock Fund, worth $75,000 (7,500 Units x $10 per Unit).  The equivalent shares of Goliath, Inc. Stock = 5,681.85 (0.75758 shares of stock per fund unit x 7,500 Units) with a market value of $56,818.50 and cash = $18,181.80 ($2.42424 cash per unit x 7,500 Units).

  • Expressed another way, Maria owns approximately 75.75% of the Total Employer Stock Fund Value ($75,000 / $99,000), therefore, her equivalent shares of Goliath, Inc. Stock = approximately 75.75% of the total shares owned by the Fund.  75.75% x 7,500 = approx 5,681 shares of Goliath, Inc. Stock.

Jennifer owns 400 Units of Stock worth $4,000 (400 Units x $10 per Unit). The equivalent shares of Goliath, Inc. Stock = 303.032 (0.75758 shares of stock per fund unit x 400 Units) with a market value of $3,030.32 and cash = $969.696 ($2.42424 cash per unit x 400 units).

  • Expressed another way, Jennifer owns approximately 4.04% of the Total Employer Stock Fund Value ($4,000 / $99,000), therefore, her equivalent shares of Goliath, Inc. Stock = approximately 4.04% of the total shares owned by the Fund.  4.04% x 7,500 = 303 shares of Goliath, Inc. Stock.

John owns 2,000 Units of Stock worth $20,000 (2,000 Units x $10 per Unit). The equivalent shares of Goliath, Inc. Stock = 1,515.16 (0.75758 shares of stock per fund unit x 2000 Units) with a market value of $15,151.60 and cash = $4,848.48 ($2.4242 cash per unit x 2000 units).

  • Expressed another way, John owns approximately 20.2% of the Total Employer Stock Fund Value ($20,000 / $99,000), therefore, his equivalent shares of Goliath, Inc. Stock = approximately 20.2% of the total shares owned by the Fund.  720.2% x 7,500 = approx 1,515 shares of Goliath, Inc. Stock.

Due to a large inflow of cash, and since no new shares of Goliath, Inc. Stock have yet to be purchased, Maria and Jennifer's equivalent shares of Goliath, Inc. Stock in the Employer Stock Fund have effectively  been 'diluted' even thought the value of each Unit of the Employer Stock Fund has not changed.

If Goliath, Inc. Stock Increases 10% in value to $11 per share (assuming no change in cash value):

  • Employer Stock Fund Unit value Increases to $10.75758 per Unit (Total shares of Goliath, Inc. Stock in the Employer Stock Fund = 7,500 x $11 per share + $24,000 Cash / 9,900 Units)
  • Maria's investment Increases approximately 7.5% to approximately $80,681.85
    • 7,500 Fund Units x $10.75758 per Unit
    • Or…5,681.85 equivalent shares of Goliath, Inc. Stock x $11 per share + $18,181.80 Cash
  • Jennifer's investment Increases approximately 7.5% to approximately $4,303.032
    • 400 Fund Units x 10.75758 per Unit
    • Or…303.032 equivalent shares of Goliath, Inc. Stock x $11 per share + $969.696 cash).
  • John's investment Increases approximately 7.5% to approximately $21,515.16
    • 2,000 Fund Units x 10.75758 per Unit
    • Or…1,515.16 equivalent shares of Goliath, Inc. Stock x $11 per share + $4,848.48 cash).

If no shares of Goliath, Inc. Stock are able to be bought by the Fund in the open market, new contributions and fund transfers into the Employer Stock Fund can be disallowed to prevent an excessive build up of cash in the fund and further 'dilution' of equivalent shares of Goliath, Inc. Stock for the existing Fund investors.

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Part 4 - Illustrates reduction in excess cash liquidity level to target cash liquidity ratio

Goliath, Inc. Stock Price remains at $10 per share.  The Unit value of the Employer Stock Fund remains at $10 per Unit.  Since the Stock Liquidity is now 24% ($24,000 total cash in the fund / $99,000 total value of the fund), the Fund purchases 1,905 shares of Goliath, Inc. Stock worth $19,050 for the Employer Stock Fund to return the liquidity level to 5%.

Total Units = 9,900 (John = 2,000; Jennifer = 400; Maria = 7,500)

Total Shares of Goliath, Inc. Stock in the Fund = 9,405 (7,500 initial purchase + 1,905 additional purchase)

Total Cash in Employer Stock Fund = $4,950

Total Value of the Fund = $99,000 (9,405 shares of Goliath, Inc. Stock x $10 price per share + $4,950 cash liquidity).

Cash Liquidity Ratio = 5% of Fund Value ($4,950 / $99,000)

Equivalent shares of Goliath, Inc. Stock per Unit of Fund = 0.95 (9,405 shares / 9,900 Fund Units)

Equivalent Cash per unit of the fund = $0.50 ($4,950 / 9,900 units)

Maria owns 7,500 Units of the Employer Stock Fund, worth $75,000 (7,500 Units x $10 per Unit).  The equivalent shares of Goliath, Inc. Stock = 7,125 (0.95 shares of stock per fund unit x 7,500 Units) with a market value of $71,250 and cash = $3,750.

  • Expressed another way, Maria owns approximately 75.75% of the Total Employer Stock Fund Value ($75,000 / $99,000), therefore, her equivalent shares of Goliath, Inc. Stock = approximately 75.75% of the total shares owned by the Fund.  75.75% x 9,405 = approx 7,125 shares of Goliath, Inc. Stock.

Jennifer owns 400 Units of Employer Stock Fund worth $4,000. The equivalent shares of Goliath, Inc. Stock = 380 (0.95 shares of stock per fund unit x 400 Units) with a market value of $3,800 and cash = $200 ($0.50 cash per unit x 400 units).

  • Expressed another way, Jennifer owns approximately 4.04% of the Total Employer Stock Fund Value ($4,000 / $99,000), therefore, her equivalent shares of Goliath, Inc. Stock = approximately 4.04% of the total shares owned by the Fund.  4.04% x 9,405 = 380 shares of Goliath, Inc. Stock.

John owns 2000 Units of the Employer Stock Fund worth $20,000 (2,000 Units x $10 per Unit). The equivalent shares of Goliath, Inc. Stock = 1,900 (0.95 shares of stock per fund unit x 2000 Units) with a market value of $19,000 and cash = $1,000 ($0.50 cash per unit x 2000 units).

  • Expressed another way, John owns approximately 20.2% of the Total Employer Stock Fund Value ($20,000 / $99,000), therefore, his equivalent shares of Goliath, Inc. Stock = approximately 20.2% of the total shares owned by the Fund.  720.2% x 9,405 = approx 1,900 shares of Goliath, Inc. Stock.

If Goliath, Inc. Stock Increases 10% in value to $11 per share, the Unit Value of the Employer Stock Fund will Increase approximately 9.5% in value (assuming no change in cash value).

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Part 5 - Illustrates cash dividend payment

Goliath, Inc. Stock Price remains at $10 per share.   Goliath, Inc. Stock pays a $0.10 cash dividend per share (1%).

Total Shares of Goliath, Inc. Stock in the Fund = 9,405 (7,500 initial purchase + 1,905 additional purchase)

Total Dividend paid to Employer Stock Fund = $940.50 (9,405 shares x $0.10 dividend per share)

Total Cash in Employer Stock Fund = $5,890.50 (previous cash liquidity value of $4,950 + 940.50 dividend)

Total Value of the Fund = $99,940.50 (9,405 shares of Goliath, Inc. Stock x $10 per share + $5,890.50 cash value)

Cash Value Liquidity % = 5.894% of Fund Value ($5,890.50 / $99,940.50)

Total Units = 9,900 (John = 2,000; Jennifer = 400; Maria = 7,500)

Equivalent shares of Goliath, Inc. Stock per Unit of Fund = 0.95 (9,405 shares / 9,900 Fund Units)

Equivalent Cash (Including dividend) per unit of the fund = $0.595 ($5,890.50 / 9,900 units)

Employer Stock Fund Unit Value = $10.095 ($99,940.50 Total Fund value / 9,900 Fund Units).  Increase of 0.95% due to dividend.

Maria owns 7,500 Units of the Employer Stock Fund, worth $75,712.50 (7,500 Units x $10.095 per Unit).  The equivalent shares of Goliath, Inc. Stock = 7,125 (0.95 shares of stock per fund unit x 7,500 Units) with a market value of $71,250 and cash = $4,462.50.

  • Due to the 1% dividend paid by Goliath, Inc. Stock, Maria's Employer Stock Fund investment earned 0.95% return reflected in the Unit Value of the Employer Stock Fund ($75,712.50 current value in the Employer Stock Fund - $75,000 previous value of Employer Stock Fund = $712.50 gain / $75,000 = 0.95%).

Jennifer owns 400 Units of Employer Stock Fund worth $4,038 (400 Units x $10.095 per Unit). The equivalent shares of Goliath, Inc. Stock = 380 (0.95 shares of stock per fund unit x 400 Units) with a market value of $3,800 and cash = $238 ($0.595 cash per unit x 400 units).

  • Due to the 1% dividend paid by Goliath, Inc. Stock, Jennifer's Employer Stock Fund investment earned 0.95% return reflected in the Unit Value of the Employer Stock Fund ($4,038 current value in the Employer Stock Fund - $4,000 previous value of Employer Stock Fund = $38 gain / $4,000 = 0.95%).

John owns 2,000 Units of the Employer Stock Fund worth $20,190 (2,000 Units x $10.095 per Unit). The equivalent shares of Goliath, Inc. Stock = 1,900 (0.95 shares of stock per fund unit x 2000 Units) with a market value of $19,000 and cash = $1,190 ($0.595 cash per unit x 2,000 units).

  • Due to the 1% dividend paid by Goliath, Inc. Stock, John's Employer Stock Fund investment earned 0.95% return reflected in the Unit Value of the Employer Stock Fund ($20,190 current value in the Employer Stock Fund - $20,000 previous value of Employer Stock Fund = $190 gain / $20,000 = 0.95%).

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Part 6 - Illustrates a simultaneous cash dividend payment and decline in stock price

If, on the same day this $0.10 dividend is paid to the Employer Stock Fund, the price of Goliath, Inc. Stock also goes down $0.10 per share (1% decline):

Goliath, Inc. Stock Price falls to $9.90 per share.   Goliath, Inc. Stock pays a $0.10 cash dividend per share.

Total Shares of Goliath, Inc. Stock in the Fund = 9,405 (7,500 initial purchase + 1,905 additional purchase)

Total Dividend paid to Employer Stock Fund = $940.50 (9,405 shares x $0.10 dividend per share)

Total Cash in Employer Stock Fund = $5,890.50 (previous cash liquidity value of $4,950 + 940.50 dividend)

Total Value of the Fund = $99,000 (9,405 shares of Goliath, Inc. Stock x $9.90 per share + $5,890.50 cash value)

Cash Value Liquidity % = 5.95% of Fund Value ($5,890.50 / $99,000)

Total Units = 9,900 (John = 2,000; Jennifer = 400; Maria = 7,500)

Equivalent shares of Goliath, Inc. Stock per Unit of Fund = 0.95 (9,405 shares / 9,900 Fund Units)

Equivalent Cash (Including dividend) per unit of the fund = $0.595 ($5,890.50 / 9,900 units)

Employer Stock Fund Unit Value = $10.00 ($99,000 Total Fund value / 9,900 Fund Units).  No change in Unit Value of the Employer Stock Fund since price decline of stock offset increased cash value of dividend.

Maria owns 7,500 Units of the Employer Stock Fund, worth $75,000 (7,500 Units x $10.00 per Unit).  The equivalent shares of Goliath, Inc. Stock = 7,125 (0.95 shares of stock per fund unit x 7,500 Units) with a market value of $70,537.50 (7,125 shares of Goliath, Inc. Stock x $9.90 price per share) and cash = $4,462.50 ($0.595 cash per fund Unit x 7500 units.

Jennifer owns 400 Units of Employer Stock Fund worth $4,000 (400 Units x $10.00 per Unit). The equivalent shares of Goliath, Inc. Stock = 380 (0.95 shares of stock per fund unit x 400 Units) with a market value of $3,762 (380 equivalent shares x $9.90 price per share) and cash = $238 ($0.595 cash per unit x 400 units).

John owns 2,000 Units of the Employer Stock Fund worth $20,000 (2,000 Units x $10.00 per Unit). The equivalent shares of Goliath, Inc. Stock = 1,900 (0.95 shares of stock per fund unit x 2,000 Fund Units) with a market value of $18,810 (1,900 equivalent shares of Goliath, Inc. Stock x $9.90 price per share) and cash = $1,190 ($0.595 cash per unit x 2,000 units).

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Part 7 - Illustrates a cash withdrawal from Employer Stock Fund

Jennifer requests a Cash Withdrawal of $4,000 from Employer Stock Fund.  Jennifer's 400 Units of the Employer Stock Fund are redeemed and $4,000 is transferred from the Cash Liquidity portion of the Employer Stock Fund to other 401(k) plan investments or a check is sent to her.

Goliath, Inc. Stock Price = $9.90 per share.

Total Shares of Goliath, Inc. Stock in the Employer Stock Fund = 9,405 (7,500 initial purchase + 1,905 additional purchases)

Total Cash in Employer Stock Fund = $1,890.50 ($5,890.50 previous cash liquidity value including dividend - $4,000 withdrawal for Jennifer)

Total Value of the Fund = $95,000 (9,405 shares of Goliath, Inc. Stock x $9.90 per share + $1,890.50 cash value)

Cash Liquidity Ratio = 1.99% of Fund Value ($1,890.50 / $95,000)

Total Units = 9,500 (John = 2,000; Jennifer = 0; Maria = 7,500)

Equivalent shares of Goliath, Inc. Stock per Unit of Fund = 0.99 (9,405 shares / 9,500 Fund Units)

Equivalent Cash (including dividend) per unit of the fund = $0.199 ($1,890.50 / 9,500 units)

Employer Stock Fund Unit Value = $10.00 ($95,000 Total Fund value / 9,500 Fund Units).

Maria owns 7,500 Units of the Employer Stock Fund, worth $75,000 (7,500 Units x $10.00 per Unit).  The equivalent shares of Goliath, Inc. Stock = 7,425 (0.99 shares of stock per fund unit x 7,500 Units) with a market value of $73,507.50 (7,425 equivalent shares of Goliath, Inc. Stock x $9.90 price per share) and cash = $1,492.50 ($0.199 cash per fund Unit x 7500 units).

Jennifer owns 0 Units of Employer Stock Fund worth $0.

John owns 2,000 Units of the Employer Stock Fund worth $20,000 (2,000 Units x $10.00 per Unit). The equivalent shares of Goliath, Inc. Stock = 1,980 (0.99 equivalent shares of stock per fund unit x 2,000 Fund Units) with a market value of $19,602 (1,980 equivalent shares of Goliath, Inc. Stock x $9.90 price per share) and cash = $398 ($0.199 cash per unit x 2,000 units).

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Part 8 - Illustrates an "In Kind" Distribution of Employer Securities from Employer Stock Fund (not all plans permit "In Kind" distributions)

John takes a Distribution of $20,000 out of the Employer Stock Fund and requests an "In Kind" withdrawal to receive the actual shares of stock. John's 2,000 Units of the Employer Stock Fund are redeemed. 1,980 actual shares of Goliath, Inc. Stock with a market value of $19,602 (1,980 shares of Goliath, Inc. Stock x $9.90 price per share) are sent to John (or re-registered to his new account) and $398 is transferred from the Cash Liquidity portion of the Employer Stock Fund to John or to his new account.

Goliath, Inc. Stock Price = $9.90 per share.

Total Shares of Goliath, Inc. Stock in the Employer Stock Fund = 7,425 (7,500 initial purchase + 1,905 additional purchase - 1,980 In Kind Withdrawal)

Total Cash in Employer Stock Fund = $1,492.50 ($5,890.50 previous cash liquidity value including dividend - $4,000 withdrawal for Jennifer - $398 withdrawal for John)

Total Value of the Fund = $75,000 (7,425 shares of Goliath, Inc. Stock x $9.90 per share + $1,492.50 cash value)

Cash Liquidity Ratio = 1.99% of Fund Value ($1,492.50 / $75,000)

Total Units = 7,500 (John = 0; Jennifer = 0; Maria = 7,500)

Equivalent shares of Goliath, Inc. Stock per Unit of Fund = 0.99 (7,425 shares / 7,500 Fund Units)

Equivalent Cash (including dividend) per unit of the fund = $0.199 ($1,492.50 / 7,500 units)

Employer Stock Fund Unit Value = $10.00 ($75,000 Total Fund value / 7,500 Fund Units).

Maria owns 7,500 Units of the Employer Stock Fund, worth $75,000 (7,500 Units x $10.00 per Unit).  The equivalent shares of Goliath, Inc. Stock = 7,425 (0.99 shares of stock per fund unit x 7,500 Units) with a market value of $73,507.50 (7,425 equivalent shares of Goliath, Inc. Stock x $9.90 price per share) and cash = $1,492.50 ($0.199 cash per fund Unit x 7,500 units).

Jennifer owns 0 Units of Employer Stock Fund worth $0.

John owns 0 Units of the Employer Stock Fund worth $0.

SUMMARY

Understanding and communicating the mechanics of an Employer Stock Fund helps the 401(k) plan participants stay fully informed and helps the Plan Sponsor ensure the operations of the Employer Stock Fund are in line with the objectives of offering such an investment.

If you would like more information on this topic, please contact your Pentegra Plan Consultant at 1.800.872.3473.