Headlines about "ESOPs"
Gathered from the web by the editors at BenefitsLink.com.
Employee Ownership Update for November 16, 2009
NCEO Executive Director Corey Rosen reports: The United Steelworkers and the Mondragon Corporation agreed to develop U.S. manufacturing companies organized as worker cooperatives with steelworker representation. The ill-fated ESOP at the Tribune Company will be replaced with a 401(k) plan. A survey of employee stock purchase plan (ESPP) participants found they are more interested in the company, work harder, and are less likely to look for a job in the coming year than those not in the plan. (National Center for Employee Ownership)
Distributions to Former Participants in Company Stock (Part 2)
In her latest column on the NCEO's site, ESOP consultant and NCEO board member Nancy Dittmer continues her discussion of distributions to former ESOP participants in company stock. (National Center for Employee Ownership)
Advanta Corp. Faces Several Probes
Excerpt: "On Friday, Philadelphia-based Spector Roseman Kodroff & Willis became the fifth law firm in the past three weeks to say it was investigating Advanta for potential violations of the Employee Retirement Income Security Act (ERISA) of 1974. Spector Roseman's investigation involves concerns that Advanta and other plan administrators may have breached their ERISA-mandated fiduciary duties of loyalty and prudence to participants and beneficiaries of Advanta's employee stock ownership plan and employee savings plan." (Philadelphia Business Journal via bizjournals.com; free registration required)
Creating Buyers: The ESOP as Exit Strategy for Company Owners
Excerpt: "Interest in creating employee stock-ownership plans seems to be ticking up among business owners worried that capital-gains tax rates soon may rise. They may want to sell now while the rates stay at 15%. These are tough times for selling a privately owned business. Valuations are low as the economy struggles to emerge from its recession, and even where buyers and sellers can agree on price, it can be difficult to secure bank financing to complete a deal. That's pushing some business owners to create their own buyers -- in the form of employee stock-ownership plans that also serve the purpose of providing employees with retirement benefits." (CFO.com)
Employee Ownership Update for November 2, 2009
NCEO Executive Director Corey Rosen discusses the following: defined contribution plan limits will remain unchanged in 2010; House Concurrent Resolution 204, expressing continued support for employee stock ownership plans (ESOPs), has been introduced; NCEO board nominations are now open; and SARs may be better than stock options in closely held companies. (National Center for Employee Ownership)
New edition of An Introduction to ESOPs
The NCEO presents excerpts from the 10th edition of 'An Introduction to ESOPs,' its most popular publication. This short book explains the rules, uses, benefits, and other aspects of ESOPs. It is useful as an introduction to the subject, as an accompaniment to a full-length book related to ESOPs, or as a concise reference for laypeople. Consultants often buy them in volume to give out to clients or potential clients interested in ESOPs, while ESOP companies buy them to hand out to employees. (National Center for Employee Ownership)
[Guidance Overview] Purchasing a Participant's ESOP Stock With a Promissory Note: Is Your 'Adequate Security' Really Adequate?
Excerpt: "There is very little case law regarding 'adequate security' when a promissory note is used to purchase the stock distributed to a participant from an ESOP. In a 1995 case3, former ESOP participants claimed ESOP Trustees had breached their fiduciary duty by purchasing stock from participants with a promissory note secured by a pledge of the stock. The lower court easily found this was not a breach of fiduciary duty, and ruled in favor of the Trustees. On appeal, the Appeals Court sent the case back to the lower court for further proceedings, finding that the facts might have given rise to a breach of fiduciary duty. There are no further reported proceedings for the case." (Warner Norcross & Judd LLP)
Influential Tax Journal Features Respected ERISA Expert Saying 'Kill ESOPs'
Excerpt: "Andrew Stumpff [and Norman Stein] have recently written a piece for Tax Notes's Shelf Project entitled ? 'Repeal Tax Incentives for ESOPs.' The article appears in the October 19, 2009 issue of Tax Notes. Professor Stein is a sought after advisor to the Congress on retirement savings policy, and is highly respected by staff policy makers in the Administration and the key Congressional tax committees. Tax Notes's Shelf Project is a collaboration among tax professionals to develop proposals to help Congress raise revenue without raising tax rates. While a close read of the article reveals more of a dislike, or debunking if you will, of the economic theories of ESOP originator Louis O. Kelso, its bottom line is ESOPs do not improve company performance, do not increase wealth consistently, and therefore do not deserve to be ERISA plans nor have tax benefits." (The ESOP Association)
[Guidance Overview] The Roles of the ESOP Trustee in the ESOP Valuation Process (PDF)
8 pages. Presentation at the ESOP Association Mid-Atlantic Chapter Conference, October 16, 2009, Charlottesville, VA. (Morgan, Lewis & Bockius LLP)
Employee Ownership Update for October 16, 2009
NCEO Executive Director Corey Rosen reports on the following: the S Corporation ESOP Promotion and Expansion Act of 2009 would provide tax benefits and establish an S corporation employee ownership assistance office at the DOL; the NCEO has developed a list that provides an analysis of employee ownership in the S&P 900 index of large- and mid-cap publicly traded companies; and ESOP companies can get employees and/or outsiders involved at the board level in a non-fiduciary advisory capacity. (National Center for Employee Ownership)
NCEO provides new data on employee ownership in S&P 900
The NCEO has completed an analysis of employee ownership in the S&P 900 index of large- and mid-cap publicly traded companies. Based on Form 5500 filings, we found 196 of the companies in the index had ESOPs or KSOPs (401(k)-ESOP combinations). Of these, 36 owned 5% or more of the company's outstanding shares. 19 companies had 401(k) plans that owned 5% or more of company shares out of 199 companies that had some company stock in their retirement plans. The data is available for purchase. (National Center for Employee Ownership)
[Official Guidance] Chart of IRS Retirement Plan Limits 2003 - 2010
Excerpt: "We have also produced a white paper that discusses the methodology that the Service uses to determine the limitations. This white paper includes the unrounded limitations." (Internal Revenue Service)
[Official Guidance] IRS Announces Pension Plan Limitations for 2010; Almost All Remain Unchanged
Excerpt: "Effective January 1, 2010, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $195,000. . . . The limitation for defined contribution plans under Section 415(c)(1)(A) remains unchanged for 2010 at $49,000. . . . The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $16,500. The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) remains unchanged at $245,000." (Internal Revenue Service)
Distributions to Former ESOP Participants in Company Stock
In her latest 'Focus on Operational Issues' column on the NCEO's Web site, Nancy Dittmer discusses some of the issues that arise with ESOP distributions to former participants made in company stock. (National Center for Employee Ownership)
Employee Ownership Update for October 1, 2009
NCEO Executive Director Corey Rosen discusses: 5 of the 15 winners of the Wall Street Journal and Winning Workplaces Best Small Workplaces Award are employee ownership companies; the Department of Labor's Phyllis Borzi says ESOPs are a priority; there is a new directory of professionals to help employees deal with stock option and other equity grants; a new definition of efficient markets; the NCEO has started a search for a new executive director; and personal notes on his change of roles. (National Center for Employee Ownership)
Executive Compensation in ESOP Companies
The NCEO presents excerpts from the second edition of its book Executive Compensation in ESOP Companies, which features the results of a 2009 survey of companies with employee stock ownership plans (ESOPs) and compares them to non-ESOP companies. (National Center for Employee Ownership (NCEO))
NCEO Introduces ESOP Company Board Member Training Package
ESOP companies have increasingly created a more formal role for their boards, often bringing in outside members or adding managers or other employees to the board. Many ESOP company board members, however, are not fully aware of their duties as a board member in an ESOP environment, and some are not very familiar with how ESOPs work. This training package provides a practical, inexpensive way to address this issue. It consists of The ESOP Company Board Handbook plus two prerecorded Webinars. (National Center for Employee Ownership)
Employee Ownership Update for September 15, 2009
NCEO Executive Director Corey Rosen discusses a new wide-scale employee ownership program in Pakistan; another court decision stating that an ESOP trustee cannot be indemnified for breaches of fiduciary duty that involve an ESOP if the indemnification comes out of corporate assets; and a new survey showing a sharp increase in restricted stock plans globally. (National Center for Employee Ownership (NCEO))
[Opinion] Will Congress Pull the Plug on ESOPs?
Excerpt: "[The ESOP Promotion and Improvement Act of 2009] was recently introduced in the U.S. Senate and would make beneficial changes in the ESOP law. Let's call that the 'Good News.' Now, it's time to advise you of what could become the 'Bad News.' The Congressional Budget Office ('CBO') recently released a list of 188 options that would either decrease federal spending or increase federal revenue. . . . They are intended to advise Members of Congress on areas where revenue might be raised. The budget options include the possible elimination of the special ESOP tax advantages." (Warner Norcross & Judd LLP)
[Guidance Overview] Ninth Circuit Bars ESOP-Owned Company from Advancing Defense Costs of Officers Accused of ERISA Fiduciary Breach by Paying Excessive Compensation (PDF)
Pages 1-3 of 8 pages. Excerpt: "[B]ased on extreme facts, the Ninth Circuit blurred the lines between corporate and fiduciary conduct for ESOP-owned companies, and created risk that such companies may not be able to offer corporate indemnification to ERISA fiduciaries." (Proskauer Rose LLP)
Review of the ESOP Promotion and Improvement Act of 2009 (PDF)
3 pages. Excerpt: "The proposed Act would amend the Internal Revenue Code (the Code) to improve the operations of ESOPs as follows: The 10% penalty on early distributions from qualified retirement plans would no longer apply to distributions made by an S corporation, to the extent the distributions are paid in cash to the participants in the ESOP or are paid to the ESOP and distributed in cash to the participants in the ESOP. Dividends paid by C corporations on stock held by an ESOP would no longer be a preference item in calculating the corporate alternative minimum tax. This amendment would apply to taxable years beginning after December 31, 1989." (Morgan, Lewis & Bockius LLP)
Determining the Cost Basis of S Corporation Shares in an ESOP
Nancy Dittmer discusses why the cost basis of ESOP shares is important and how it is determined, with emphasis on S corporations. (National Center for Employee Ownership)
Employee Ownership Update for August 31, 2009
NCEO Executive Director Corey Rosen discusses the Congressional Budget Office's listing of the elimination of ESOP tax benefits as a way to save tax dollars; a new NCEO survey finding that smaller companies have more generous ESPPs and higher participation rates; and lawsuits that examine the class standing issue raised by the Supreme Court's LaRue decision. (National Center for Employee Ownership)
Important New Online Official Survey Asks How the New Retirement Plan IRS Determination Letter Process is Working, How It Might Be Improved
An IRS advisory council is studying the retirement plan document determination letter process. A new online survey form asks for the views of employers, benefits attorneys, third-party administrators, consultants, providers of master & prototype documents, and other stakeholders. In 2005 the IRS radically changed the determination letter process by creating 5-year and 6-year cycles for amending and filing individually designed, volume submitter, and M&P retirement plan documents. Further changes were made in 2007. The advisory council wants to know how the process is working and how it might be improved, including the process for making required amendments or restatements. To learn more or take the survey now, click on the following address or copy and paste it into your web browser: http://www.surveymonkey.com/s.aspx?sm=EL2r2msS3KJI07X_2fq67w6w_3d_3d (IRS Advisory Committee on Tax Exempt and Government Entities (TE/GE))
Senate Bill S 1612, the 'Employee Stock Ownership Plan Promotion and Improvement Act of 2009' Introduced
Excerpt: "The bill is similar to legislation . . . introduced in 2007, but was never reported out of the Senate Finance Committee." (Warner Norcross & Judd LLP)
Companies with ESOP Outperformed Stock Market, According to Survey
Excerpt: "Results from the Employee Ownership Foundation's 18th Annual ESOP Economic Performance Survey show that 88.5% of ESOP companies outperformed the stock market in 2008. According to a press release, the results indicate respondents' companies outperformed the Dow Jones Industrial Average, the NASDAQ Composite, and the S&P 500. In addition, 50.9% of respondents indicated a better performance in 2008 than in 2007; 39.7% indicated a worse performance; and 9.4% indicated a nearly identical performance as the previous year, the announcement said. Nearly 58% indicated revenue increased, and more than half (50.4%) indicated profitability increased." (PLANSPONSOR.com; free registration required)
The Employee Ownership Update for August 17, 2009
NCEO Executive Director Corey Rosen discusses the ESOP Improvements Act, the results of the NCEO's new survey on employee stock purchase plans (ESPPs), and an important Ninth Circuit decision in the Johnson v. Couturier case concerning the role of ESOP fiduciaries in dealing with executive pay and the ability of companies to indemnify fiduciaries. (The National Center for Employee Ownership)
An ESOP Is a Very Attractive Retirement Plan in the Right Circumstances
Excerpt: "In the appropriate circumstances, an ESOP offers a multitude of economically superior ways to accomplish numerous important objectives. These objectives might be desired by a company's owners, management team and other employees, and include, among others: Selling either the entire company or partial ownership of it. Rewarding and incentivizing employees. Facilitating a business divorce. Financing business expansion. Tax deferred diversification of all or a portion of concentrated and illiquid share ownership in the company into a portfolio of publicly traded stock and debt securities. Charitable giving objectives." (Holland & Hart LLP)
[Guidance Overview] Ninth Circuit Rules That ERISA Fiduciary Responsibility Can Apply to Company Decisions
Excerpt: "In Johnson v. Couturier, Nos. 08-17369, 08-17373, 08-17375, 08-17631 (Ninth Circuit 2009), the Court broadened some of the thinking on the application of ERISA. In this case, in his capacity as president and a director of Noll Manufacturing Company and its successors ('Noll'), the defendant, Clair R. Couturier, Jr. had channeled $34.8 million of company assets to his own possession by applying that amount to buy out certain deferred compensation agreements (the 'Buy Out'). Couturier was also a trustee of Noll's employee stock ownership plan (the 'ESOP'). The plaintiffs, who are participants in the ESOP, filed suit against Couturier alleging breach of fiduciary duties under ERISA. The Court faced a number of issues, including some interesting ERISA matters." (ERISA Lawyer Blog)
Summary of Provisions of S. 1612, the ESOP Promotion and Improvement Act of 2009 (PDF)
1 page. Excerpt: "[Two provisions are as follows:] S. 1612 would repeal the punitive 10% penalty tax on S corporations distributions from current earnings, also referred to as dividends, placed on the distributions from current earnings that are passed through to ESOP participants in cash. S. 1612 would clarify that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax." (The ESOP Association)
Impact on ESOP Participants of S Corporation Status
In her latest column on the NCEO's site, Nancy Dittmer discusses the impact of the S corporation provisions of the Internal Revenue Code on ESOP participants. (National Center for Employee Ownership)
The ESOP Company Board Handbook
Serving on any corporate board is a serious responsibility. Serving on an ESOP company board adds the additional responsibility of understanding how ESOP law and best practices interact with corporate law and best practices. Special ESOP issues such as valuation, the repurchase obligation, S corporation anti-abuse rules, monitoring fiduciaries, executive pay considerations, and responding to takeover bids demand at least a working knowledge of ESOPs. This new book addresses all this and more. (National Center for Employee Ownership)
Employee Ownership Update for August 4, 2009
NCEO Executive Director Corey Rosen discusses ESOP valuations in the downturn; how 11 of the 35 Winning Workplaces Awards finalists are NCEO members; statements in a new papal encyclical that could relate to employee ownership; whether it is taxable if employees monetize stock options with call options; and a new ESPP survey showing few changes to plans. (National Center for Employee Ownership)
[Guidance Overview] In ESOP Setting, ERISA Fiduciary Law May Apply to Decisions Related to Corporate Salaries, According to Ninth Circuit
Excerpt: "A recent Ninth Circuit case highlights the conflicts that can occur where an ESOP is involved. For instance, are decisions relating to corporate salaries, when made by directors and officers who are also fiduciaries of the company's ESOP, subject to ERISA fiduciary law such that the decisions must be made in the best interest of participants and beneficiaries? The Ninth Circuit in Johnson v. Couturier held that such decisions should be subject to ERISA fiduciary law where the fiduciaries stand to 'directly profit' from such decisions . . . ." (ERISA Fiduciary Guidebook)
[Guidance Overview] Issues Affecting Successor ESOP Fiduciaries
Excerpt: "In a prior article, 'So You Want To Be A Fiduciary,' . . . we raised the question of whether a successor fiduciary can be held personally liable for a breach of duty that occurred prior to his or her appointment. In this article, we will question the scope of this duty in the employee stock ownership plan (ESOP) context by looking at two cases in the Ninth Circuit: Barker v. American Mobile Power Corp., concerning the duty to investigate; and Fernandez v. K-M Indus. Holding Co., Inc., concerning the statute of limitations with which successor trustees must be concerned." (Chang Ruthenberg & Long P.C.)
[Guidance Overview] Some ESOP Issues in Tough Economic Times
Excerpt: "Many companies have been experiencing financial difficulties over the past year. In some cases, companies have already or will reduce their workforce or close a facility. Those actions impact an ESOP in unique ways." (Warner Norcross & Judd LLP)
[Guidance Overview] Corporation's Stock Redemption Payments to ESOP Trust Not Deductible
Excerpt: "The U.S. Court of Appeals for the Third Circuit affirmed a district court decision holding that a C corporation was not entitled to deductions under IRC ? 404(k)(1) for payments made to its ESOP trust to redeem shares allocated to the accounts of ESOP participants who requested cash payouts upon the termination of their employment. The appeals court concluded that the deduction was disallowed under IRC ? 162(k)(1). __________ v. United States, No. 07-3564 (3d Cir. July 13, 2009)." (Deloitte via BenefitsLink.com)
Third Circuit Denies Company's Claim for ESOP Dividend Deduction
Excerpt: "No deduction is allowed for amounts paid by a company to redeem stock when ESOP participants terminate employment, the US Court of Appeals for the Third Circuit has ruled (Conopco v. US). The company made the redemption payments 'in connection with the reacquisition of its stock,' the court said, so the deduction was prohibited by Code Section 162(k). The decision is consistent with a recent Eighth Circuit case but conflicts with a 2003 Ninth Circuit ruling. The cases involve tax years before 2006, when the IRS issued final regulations barring deductions in this situation." (Mercer LLC)
ESOP: A Great Incentive for Employees (PDF)
Page 4 of 6 pages. Excerpt: "Perhaps the most overlooked benefit of ESOPs is their potential effect on employees. Several studies have shown that, when properly communicated, ESOPs result in 'employee-owner' attitude and behavior. Over time, this results in increased productivity and efficiency and higher stock value." (Swerdlin & Company)
How Many 'Buckets' of Shares Does Your ESOP Have?
Nancy Dittmer discusses the circumstances that necessitate that the company stock (and the related other investment or cash account) in an ESOP should be maintained in its own separate 'bucket." (National Center for Employee Ownership)
Employee Ownership Update for July 14, 2009
NCEO Executive Director Corey Rosen discusses how India and Australia are lowering barriers to employee ownership; data showing a 27% drop in the median sale price of closely held businesses in 2008; a warning against paying a percentage of the transaction as a fee to set up an ESOP; and an Ownership Thinking meeting in September. (National Center for Employee Ownership)
A Review of Judge Sotomayor's Second Circuit ERISA Cases
Excerpt: "Five of the Second Circuit opinions authored by Judge Sonia Sotomayor deal with the Employee Retirement Income Security Act (ERISA). ERISA cases aren't considered as sexy as a lot of employment law cases, but the number of such cases is growing. The U.S. Supreme Court is occasionally asked to consider a case filed under this complicated statute. Getting a sense for how Sotomayor approaches ERISA is, therefore, useful." (M.Lee Smith Publishers)
Employee Ownership Update for July 1, 2009
NCEO Executive Director Corey Rosen, in his first column on the newly revised NCEO Web site, reports on what's new in the employee ownership world: SAIC changed its stock structure to eliminate the 10-to-1 voting rights that preferred shares held by employees were given when the company went public, the SEC issued a rule allowing employees with vested stock options to use them as collateral to purchase call options, and the NCEO is soliciting material for a book on what not to do with an ESOP. (National Center for Employee Ownership)
Worker-Owners Sue Top Leaders at the Antioch Co.
Excerpt: "Current and former employees who lost millions when scrapbooking pioneer Creative Memories filed for bankruptcy protection are suing leaders of their former employer and its parent company. The current and former employees contend that when St. Cloud-based Creative Memories and its parent The Antioch Co. decided to become 100 percent employee-owned, its top leaders and other representatives did so with conflicts of interest and wanted only to avoid taxes and retain personal profit and control. These decisions, along with financial incentives for employees to cash in their stock, eventually led Antioch and Creative Memories to file Chapter 11 bankruptcy in November. The current and former workers' retirement accounts became worthless as a result, they claim in two recently filed lawsuits. Although each lawsuit makes similar accusations, plaintiffs in the two cases argue different points and seek different outcomes." (St. Cloud Times)
[Guidance Overview] ESOP Plan Sponsor Held Liable for Issuance of 10-Year Note to Satisfy Repurchase Obligation (PDF)
3 pages. Excerpt: "In a case recently decided by a federal district court in Indiana, Craig v. Smith, 2009 WL 438635 (S.D. Ind. Feb. 20, 2009), Ontario Corporation was held to have violated ERISA by issuing a 10-year promissory note in payment for shares that had been credited to the account of a former employee, Charles A. Craig, under the company's employee stock ownership plan (ESOP), as it violated the requirement that the term of any note issued in satisfaction of a terminated ESOP participant's put right could not exceed five years." (Morgan, Lewis & Bockius LLP)
[Guidance Overview] Federal Court Denies ESOP Participant Claims for Breach of Fiduciary Duty (PDF)
3 pages. Excerpt: "In Blankenship v. Chamberlain, 2009 WL 1421201 (E.D. Mo. May 20, 2009), the court considered a complaint with five counts, including two claims for breach of fiduciary duty under ERISA (one for injunctive relief and one for monetary relief), a common law claim for breach of fiduciary duty, a claim under Missouri state law to remove the defendant as an officer of the company and a trustee of the ESOP, and a claim for an accounting." (Morgan, Lewis & Bockius LLP)
Safe Harbor 401(k) Contributions Made to an ESOP: More Details
In the second installment of her column on the National Center for Employee Ownership's Web site, Nancy Dittmer returns to the topic of safe-harbor 401(k) contributions made to an ESOP. (National Center for Employee Ownership)
Owning Too Much Company Stock Puts Workers' Retirement at Risk, According to Study
Excerpt: "Congress should ban employer stock from company-sponsored retirement plans to spare workers the risk of putting too much of their nest eggs in one basket, a new study by a University of Illinois legal expert says. Sean Anderson says employee stock ownership plans, or ESOPs, are the biggest threat, with even heavier investment in company stock than the 401(k) plan that gobbled up workers' savings when energy giant Enron Corp. collapsed amid scandal in 2001. Workers whose employers have ESOPs also typically have no choice about whether to invest in company stock, said Anderson, who wrote an article that will appear in the Loyola University Chicago Law Journal." (Agency Science)
Safe Harbor 401(k) Contributions Made to an ESOP
The first installment of a new online column by Nancy Dittmer at the NCEO Web site. (National Center for Employee Ownership)
[Guidance Overview] Letter Ruling Illustrates Need for Care to Preserve Beneficial Taxation of ESOP Stock Distributions
Excerpt: "It is not necessary to physically distribute a stock certificate to the former employee, if he immediately sells the stock back to the employer. However, it is crucial that the ESOP, the distribution documents and the operating procedures clearly provide that the employee is receiving stock from the ESOP and is immediately selling the stock to the employer. The ruling DOES NOT consider the situation where the ESOP itself purchases the stock from the terminated employee, instead of a purchase by the employer." (Warner Norcross & Judd LLP)
Twelve Bogus Reasons Not to Do an ESOP (and Seven Good Ones)
NCEO Executive Director Corey Rosen discusses valid and invalid reasons why not to implement an employee stock ownership plan (ESOP). (National Center for Employee Ownership)
Employee Ownership Update for May 29, 2009
NCEO Executive Director Corey Rosen discusses the NCEO's 2009 Employee Ownership 100 list; the Australian government's withdrawal of a proposal to tax equity awards at the time of grant for higher-income taxpayers; German unions pressing for an equity stake in companies where they are taking concessions; and a new LinkedIn group from the NCEO. (National Center for Employee Ownership)
[Guidance Overview] Circuits Split on Deductibility of Proceeds from Stock Redemption Used to Satisfy ESOP Distribution Obligations
Excerpt: "An Internal Revenue Service (IRS) official recently commented at an American Law Institute-American Bar Association conference that the IRS will continue to litigate the issue of whether a corporation is entitled to a deduction under Section 404(k)(1) of the Internal Revenue Code (the Code) for payments used to redeem its stock to satisfy the distribution obligations under its employee stock ownership plan (ESOP). . . . This comment appears to be in response to the Eighth Circuit's decision on this issue in General Mills v. United States, 554 F.3d 727 (8th Cir. 2009), which although favorable to the IRS, is contrary to the decision reached by the Ninth Circuit in Boise Cascade v. United States, 329 F.3d 751 (9th Cir. 2003)." (Morgan, Lewis & Bockius LLP)
Updated Employee Ownership 100 list: America's largest ESOP and other employee-owned companies
The NCEO has published on its Web site the newest version of its Employee Ownership 100 list, which lists the largest U.S. companies with least 50% of their stock owned by an ESOP, a stock purchase plan in which most full-time employees can participate, a profit sharing plan or other trust, or some combination of such plans. (National Center for Employee Ownership)
Employee Ownership Update for May 15, 2009
NCEO Executive Director Corey Rosen discusses the impressive 2003-2008 stock price growth of ESOP companies in a recent NCEO survey of executive compensation; stories that your customers tell about you, illustrated by an anecdote from Southwest Airlines President Emeritus Colleen Barrett; a new paper saying that the stock options backdating scandal caused significant shareholder damage; and the Ownership Thinking conference. (National Center for Employee Ownership)
[Guidance Overview] Problems to Avoid in ESOP Distributions
Excerpt: "The adverse impact of ESOP distribution provisions on company profits must be balanced with the company's desire to provide meaningful benefits to plan participants. In most cases, ESOP plan design starts with the assumption that distributions should resemble the form and timing for distributions from profit sharing plans or other plans sponsored by the employer. It is not unusual to find ESOPs drafted to provide distributions commencing in the year after separation from service and including single sum distributions. Often single sum distributions are called for in the document to allow distributees to take advantage of capital gain treatment for the appreciation in the stock's value - a sound, but often impractical planning point." (Chang Ruthenberg & Long PC)
At Chrysler and GM, It's Not Employee Ownership
As part of their efforts to recover, General Motors and Chrysler are pursuing agreements with the UAW to provide the union with company stock to help fund retiree health-care trusts. NCEO Executive Director Corey Rosen explains that although many articles in the press say that employees will now be owners of General Motors and Chrysler through this plan, what is being proposed is not really employee ownership in any meaningful sense. (National Center for Employee Ownership)
[Guidance Overview] Indemnification Provisions: Do They Apply to Excuse a Party's Own Wrongdoing?
Excerpt: "A novel indemnification issue arose in the context of the complex ERISA litigation before U.S. District Court Judge Melinda Harmon in the Texas Southern District. Can a party invoke an indemnification provision in an administrative services agreement as a defense to its own negligence? The facts are quite complex, but unnecessary for comprehending the essential issue at stake here. The litigation is not about the Enron class action settlement, but about mistakes in calculation of entitlement to the settlement funds. In short, the critical issue is responsibility for losses and expenses resulting from Hewitt's mistaken calculations for distribution of the first tranche of the settlement funds, as well as for defense of claims brought against Hewitt by Enron Corp. Savings Plan and the Administrative Committee of the Enron Savings Plan." (Roy Harmon III via Health Plan Law)
Judge Dismisses Most Claims in U.S. Sugar Suit
Excerpt: "A federal court judge has pulled the plug on 12 of 13 counts that were part of a class action lawsuit filed by shareholders of Clewiston-based U.S. Sugar Corp. The suit, filed in January 2008 in West Palm Beach, alleged that some of the company's top executives attempted to deprive shareholders of a chance to sell their stock on two occasions when U.S. Sugar received buyout offers. The 13-count complaint alleged breach of fiduciary duty and violation of Employee Retirement Income Security Act (ERISA) statutes." (South Florida Business Journal via bizjournals.com; free registration required)
Judge Dismisses Most Claims in U.S. Sugar Suit
Excerpt: "A federal court judge has pulled the plug on 12 of 13 counts that were part of a class action lawsuit filed by shareholders of Clewiston-based U.S. Sugar Corp. The suit, filed in January 2008 in West Palm Beach, alleged that some of the company's top executives attempted to deprive shareholders of a chance to sell their stock on two occasions when U.S. Sugar received buyout offers. The 13-count complaint alleged breach of fiduciary duty and violation of Employee Retirement Income Security Act (ERISA) statutes." (South Florida Business Journal via bizjournals.com; free registration required)
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