Rainbow Companies

What does it Mean to be an Employee-Owned Company?

Rainbow is 100% employee-owned through our Employee Stock Ownership Plan (ESOP). An ESOP is a type of retirement benefit. ESOPs follow many of the same regulations governing 401(k) retirement plans, but they differ in many ways. More importantly, they also offer benefits to employees and companies not found in 401(k) plans. These benefits include motivation for employees to help the business succeed, improve worker retention, contribute to business longevity, and so much more.

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How an ESOP works

Trust fund is created
The company sets up a trust fund and contributes new shares of company stock and/or cash to be used for purchasing shares.

Shares are allocated
Shares from the trust are distributed to individual employee accounts. This creates employee owners!

Additional shares are given yearly
ESOP Participants receive additional share allocations every year until 100% of all shares have been fully allocated.

Vesting occurs
Over a period of time, called a vesting period, the employee earns a greater percentage of non-forfeitable ownership over the value held in their ESOP account. Upon reaching their 6th anniversary of beginning work with the company, employees generally become 100% vested.

Share value is linked to company performance
The value of the employee-owners’ shares is linked to how well the company performs financially.

The employee is paid out full share value
When the employee leaves the company, they receive cash payouts over time for the vested value of their ESOP account holdings based on a then-current fair market value.

ESOPs offer more than just retirement benefits

Positive workplace culture
When the company does better, the ESOP share value grows, and everyone shares in the reward. This contributes to a positive work culture, as employees-owners  directly benefit when their co-workers do better. Employees are more likely to step in when help is needed.

Everyone can participate
Because there is no out-of-pocket cost, everyone can build retirement assets, regardless of how much money they are able to save or invest. When a 401(k) is the only available option at a company, there will always be some employees who are not able to participate to the fullest.

Support company longevity
Together, employee-owners share the same goal of helping the company thrive into the future.

ESOP basics

After being with the company for one year (with a minimum of 1,000 hours worked during that time), employees become eligible for participation in the ESOP, which entitles them to annual allocations of shares into their personal ESOP account at the end of each calendar year. The value of the shares is linked to the company’s financial performance and will change over time. Each year, participating employees are allocated additional shares in a manner consistent with the language of the ESOP Plan Document. Unlike a 401(k), there is no out-of-pocket cost to the employee. The shares held by the ESOP and allocated to participants are contributed solely by the company. 

One key requirement of an ESOP requires that an independent valuation expert be engaged annually to establish an updated per-share value for shares held by the ESOP on behalf of the Plan Trustee. When a participating employee retires or leaves the company for any other reason, they are entitled to receive the then-current market value for the vested portion of their ESOP account holdings.

The receipt of this vested account value is paid out in cash to the former participant over varying time periods depending on considerations as described in the ESOP Plan Document. An ESOP can be especially rewarding for employees who stay with the company over a long period of years, during which they would presumably contribute significantly to the company’s success and a correlated increase in share value. Learn more. https://www.esopinfo.org/how-esops-work/

Other retirement saving plans also offered

Employees at companies with ESOPs in place can still participate in other retirement programs, including 401(k) and IRA accounts. Rainbow also offers a 401(k) plan to full-time employees, including a 50% match of an employee’s deferral up to a maximum value of 3% of that employee’s annual compensation (achieved by the employee deferring at least 6% of their compensation)!